With the signing of the draft Johor-Singapore special economic zone (JS-SEZ) set to take place in December, CGS International analysts Lim Siew Khee, Chehan Perera and Nazmi Idrus believe Malaysia could benefit more from the SEZ in the near term. This is based on ground checks conducted among CGSI’s counters in Malaysia and Singapore.
According to a release dated Nov 7, the Malaysia-Singapore Joint Ministerial Committee for Iskandar Malaysia (JMCIM) will look at signing the draft joint agreement for the JS-SEZ at the 11th Malaysia-Singapore leaders’ retreat. While no official date has been announced, Johor Chief Minister Onn Hafiz Ghazi has indicated to Malaysian media hat the retreat could be held from Dec 8 to 9.
“Given the complexity of the joint agreement, we think the structure and incentives of JS-SEZ will be announced and rolled progressively, by sector,” the analysts write in their Nov 27 report.
While details are scarce at the moment, the memorandum of understanding (MOU) signed by Singapore and Malaysia in January this year specified that the JS-SEZ targets to draw in cumulative investments of RM636 billion ($192.12 billion) by 2030. Other targets include growing Iskandar Malaysia’s estimated GDP to RM158 billion and employment of 1.4 million workers. Iskandar Malaysia also aims to grow its average monthly household income to RM15,700 by 2030 from RM10,700 in 2025.
Several proposals have been made for the JS-SEZ including passport-free clearance, special tax arrangements, the easier movement of goods and joint promotions to improve cross-border businesses between both sides of the causeway. Other incentives have also been proposed, including competitive taxes such as a flat income tax rate of 15% for skilled foreign workers, lower than the individual income tax rate of 24% in Singapore and up to 305 in Malaysia. Eligible small- and medium-sized businesses (SMEs) may also get to enjoy a preferential tax rate of 15% to 17% for the first RMB600,000 in Malaysia and Johor.
Within the Malaysian counters, the analysts believe those in construction, utilities, real estate and technology are the largest beneficiaries of the JS-SEZ. This is followed by healthcare, financial services and plantations.
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Specifically, the analysts have named companies within CGSI’s coverage as beneficiaries. They are: Eco World, Sunway Construction, Tenaga, Malakoff, YTL Power, banks such as Maybank, CIMB, RHB, SD Guthrie, Genting Plantations, VS Industries, SKP Resources, IHH and KPJ Healthcare.
In Singapore, Centurion emerged as the “clear winner” as it has eight workers’ dormitories in Malaysia with 66% of them located in Johor.
“Our channel checks with other firms with operations in Johor indicate that execution is key, with most saying it is too soon to decide on expansion plans arising from the deal. However, companies believe tax breaks and streamlined regulatory processes will likely make Johor a more cost-effective investment destination,” the analysts write.
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Meanwhile, data centre operators have highlighted the need for stability and availability of reliable energy sources for their future expansion plans in the zone. In June, The Edge Malaysia reported that Singapore Telecommunications (Singtel) was in talks to build a data centre in Johor, while The Edge Singapore took a closer look at the data centre industry in Johor in July, noting demand for spillovers from Singapore.
RTS may see retail leakage
The Rapid Transit System (RTS) Link, which is widely seen as the “most catalytic project” synonymous with the JS-SEZ, may see retail leakage from Singapore to Johor.
“[The] RTS could lead to an incremental 100,000 daily outgoing travellers to Johor from Singapore. We estimate 2.1% - 2.3% of retail sales leakage based on $100 - $110/day of spending and 50% of these travellers,” the analysts say.
They add that residents living in the northwestern parts of Singapore would account for most of this leakage due to their proximity to the RTS station in Woodlands.
In mid-July, The Edge Singapore ran a series of stories on the RTS and SEZ and the effects it would have on stocks including Genting Singapore's Resorts World Sentosa (RWS), Frasers Centrepoint Trust (FCT) and ComfortDelGro (CDG).
FCT has the most malls located in Singapore’s northern regions among the retail REITs under CGSI’s coverage, the analysts point out. These malls account for 27% of FCT’s FY2024 net property income (NPI), which includes its joint venture (JV) stakes in Waterway Point and NEX, on a 100% basis.
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Trade tariffs could boost collaborations
With pressures looming from potentially higher trade tariffs between the US and China, the analysts note that the zone could benefit even more from the China+1 supply chain diversification. To be sure, China was the largest investor in Iskandar Malaysia with RM61.9 billion worth of investments.
Some of the companies named include Singapore Exchange S68 (SGX)-listed GHY Culture & Media, ByteDance, Forest City, Kaifa and New World Development Company.
