Johor-Singapore Special Economic Zone: Unlocking Malaysia’s Next Economic Powerhouse

Comprehensive Analysis of JS-SEZ Proxies and Key Companies

Broker: Maybank Investment Bank Berhad

Date: January 22, 2025

Introduction

The Johor-Singapore Special Economic Zone (JS-SEZ) initiative is positioned to be a critical driver of economic growth in the region. This report sheds light on the companies that are set to benefit from this transformative project. Industry leaders from property development, infrastructure, plantations, and technology sectors are aligning their strategies to capitalize on the opportunities presented. Below is an in-depth analysis of these companies, their positioning, and the broker’s recommendations.

Dialog Group: Beneficiary of JS-SEZ Development

Dialog Group is poised to reap the long-term benefits of the JS-SEZ development, particularly through its substantial assets in the Pengerang Deepwater Terminals (PDT). The company is well-regarded for its operational and financial stability, bolstered by its midstream tank terminal assets.

Assets: Dialog has 500 acres of vacant, reclaimed land in PDT for expansion. Its key partners include Petronas Gas, Petronas Chemicals, and Vopak.
Performance Metrics: Dialog’s FY23A revenue stood at MYR3,002m, with an EBITDA of MYR517m. The company’s core net profit is forecasted to grow from MYR506m in FY23A to MYR739m by FY27E.
Key Risks: Risks include fluctuations in crude oil prices, cost overruns for EPCC projects, and lower tank terminal utilization rates.
Recommendation: Maintain a “Buy” rating with a sum-of-parts-based target price of MYR2.97, reflecting a 54% upside.

Eco World Development: Reaping the Fruits of Industrial Parks

Eco World Development (ECW) is well-positioned to benefit from its strategically located Quantum Edge Business Park (QEBP) in Kulai. This industrial park targets high-tech players in AI, cloud computing, and R&D sectors.

Land Deals: ECW secured land sales with Microsoft (123 acres for MYR402m) and Princeton Digital Group (57 acres for MYR224m).
Future Prospects: The QEBP project is expected to contribute 28% of FY25E pretax profit. ECW is also in talks with additional data center operators.
Financials: ECW’s revenue for FY23A was MYR2,227m, with a core net profit of MYR273m. The company targets MYR3.9b in property sales for FY24E.
Recommendation: Maintain a “Buy” rating with a target price of MYR2.25, representing an 18% upside.

Genting Plantations: Diversifying Beyond Oil Palm

Genting Plantations (GENP) leverages its extensive landbank in Kulai for both plantation and property development. The company’s strategy includes monetizing estates for development, particularly in the JS-SEZ region.

Landbank: GENP owns approximately 2,536 hectares in Kulai, valued at MYR3.5b.
Performance Metrics: FY23A revenue stood at MYR2,966m, with EBITDA of MYR726m. Core net profit is projected to grow to MYR346m by FY26E.
Risks: Key risks include weather anomalies, lower-than-expected CPO prices, and unfavorable policies affecting the palm oil sector.
Recommendation: Maintain a “Buy” rating with a target price of MYR6.96, offering a 25% upside.

ITMAX System: Johor’s Smart City Juggernaut

ITMAX System is a leading smart city solutions provider, offering integrated services like CCTVs, traffic controllers, and automated parking solutions. ITMAX has established a strong foothold in Johor, securing key urban infrastructure projects.

Growth Drivers: ITMAX’s revenue is forecasted to grow from MYR107m in FY22A to MYR320m by FY26E, driven by urban infrastructure projects in JS-SEZ.
Profitability: EBITDA margin is expected to remain robust at around 66% from FY24E to FY26E.
Recommendation: Maintain a “Buy” rating with a target price of MYR4.40, reflecting a 22% upside.

KL Kepong: Balancing Growth and Stability

Kuala Lumpur Kepong (KLK) is an integrated palm oil operator with significant operations in property development to monetize prime estates. The company’s Fraser Estate in Kulai is a key asset within the JS-SEZ.

Financials: KLK’s revenue for FY23A was MYR23,648m, with EBITDA of MYR2,658m. Core net profit is forecasted to grow to MYR1,369m by FY27E.
Key Risks: Weather anomalies, unfavorable policies, and lower competing oil prices pose risks to KLK’s operations.
Recommendation: Maintain a “Hold” rating with a target price of MYR21.30, indicating an 8% upside.

SD Guthrie: A Prime Beneficiary of JS-SEZ

SD Guthrie, formerly Sime Darby Plantation, is the largest real estate owner in the JS-SEZ, with 12,842 acres of land in Kulai. The company is exploring land monetization and green industrial park development.

Strategic Partnerships: SD Guthrie signed a MoU with AME Elite to develop a green industrial park in its northern parcel of land.
Financials: FY23A revenue was MYR18,428m, and core net profit stood at MYR875m. The company expects a steady growth trajectory, with core net profit reaching MYR1,714m by FY26E.
Recommendation: Maintain a “Buy” rating with a target price of MYR5.41, reflecting a 14% upside.

YTL Power: Driving Data Center Expansion

YTL Power is capitalizing on its Johor Data Center Park in Kulai, which spans 664 hectares. The company is progressing with its multi-phase data center development, catering to AI compute services and co-location demand.

Progress: Phase 1 is operational with a 48MW IT load, while Phase 2 is under construction and expected to cater to AI servers.
Financials: FY23A revenue was MYR21,893m, and EBITDA was MYR4,847m. Core net profit is forecasted to reach MYR2,808m by FY27E.
Recommendation: Maintain a “Buy” rating with a target price of MYR4.70, reflecting a 19% upside.

Conclusion

The JS-SEZ initiative continues to present remarkable opportunities for companies across various sectors. With strategic positioning and projects aligned to leverage growth, these companies are primed to benefit from the economic boom in the region. Investors are advised to consider the recommendations and potential upsides highlighted in this analysis.