On Jan 8, shortly after the signing of the Johor-Singapore Special Economic Zone (JS-SEZ) agreement, UOB Kay Hian (UOBKH) unveiled a list of Bursa-listed beneficiaries — prompting market watchers to suggest that, among the Singapore Exchange (SGX)-listed beneficiaries, UOBKH is likely to be a front-runner, poised to benefit from a potential “double whammy”.
UOBKH stands to benefit from both the rise in foreign direct investments (FDI) into Johor, which is driving companies to raise capital and debt on the Bursa and the ongoing efforts to strengthen the Singapore equities market.
“A vibrant equities market is a major pillar of every financial centre, fuelling entrepreneurship, encouraging start-ups and venture capital, and overall economic growth,” said Koh Boon Hwee, chairman of Singapore Exchange Group, on Jan 2. UOBKH is the only listed broker on the SGX. It offers a wide range of corporate finance services, including financial advisory and investment banking, underwriting, and placement services for primary and secondary listings. UOBKH also provides a popular margin financing product.
In 2023, UOBKH launched a corporate action portal on the UTrade platform for its clients, enabling prompt e-notifications on their corporate action events and direct submission of related instructions online for all markets. Market watchers believe these products and services are likely to serve the group well as interest in Bursa continues to rise.
The JSSEZ is expected to spur investment and FDIs. In a report dated Jan 7, UOBKH noted that “The JS-SEZ rides on Singapore’s offering as a robust MNC business hub, with Johor to complement with better cost of business — from abundant supply of land, labour costs and favourable tax regime. Envisioned to be a successful industrialisation zone, JS-SEZ is expected to be more than four times larger than Singapore and nearly twice the size of China’s Shenzhen.” Shenzhen is home to a thriving equities market where many of China’s tech companies are listed.
“UOBKH is a pseudo bank,” notes an analyst when asked who he thinks the beneficiaries of the JS-SEZ are likely to be. He thinks UOBKH will be a standout beneficiary. UOBKH’s clients also have access to multiple products across major markets, including the SGX, Bursa, KEX (Korean Exchange), K-Shanghai/ Shenzhen Stock Connect, Stock Exchange of Thailand (SET), London Stock Exchange (LSE), and the Toronto Stock Exchange (TSX).
See also: Prudential starts US$800 million share buyback programme
SG, MY banks to benefit
UOBKH isn’t the only financial services company with a presence in Singapore and Malaysia. Maybank has been on the front foot with the Malaysia-Singapore leaders’ retreat and a conference following the signing of the JS-SEZ agreement. Maybank is well-positioned to benefit from the new SEZ. With a presence across all 10 Asean economies, Singapore is its second-largest contributor to PBT, accounting for 16%, after its home market of Malaysia.
Among the local banks, United Overseas Bank increased its presence in Malaysia following the integration of Citigroup’s retail business in Malaysia, Thailand, Indonesia and Vietnam. “Its expanded operation is likely to open up more cross-selling opportunities in the future to drive fee income growth from the region,” says OCBC Investment Research in an update on Jan 10.
During a results briefing on Nov 8, Group CEO Wee Ee Cheong guided for credit costs for FY2024 to remain within its 25-30 bps, high single-digit loan growth, double-digit fee growth and for the cost-to-income ratio to stay at around 41% to 42% (same as FY2024). Wee also hinted at a special dividend to celebrate its 90th anniversary in 2025. Malaysia contributes some 10% to UOB’s PBT based on its 3QFY2024 financial report.
Tan Teck Long, head of global wholesale banking at Oversea-Chinese Banking Corporation, says that even before the signing of the JSSEZ agreement, OCBC had already received many enquiries from businesses across the region about setting up shop in Johor.
“In 2024 alone, we supported about 260 new mid-sized enterprises from the region, mainly from the services, construction, manufacturing and wholesale and retail trade sectors, to set up their businesses in Malaysia. We anticipate this number to increase by 20% in 2025,” Tan said.
For the nine months to Sept 30, Malaysia contributed 12% to OCBC’s PBT.
While it is Asean’s largest bank, DBS Group Holdings does not have a banking licence in Malaysia. However, according to Goldman Sachs, DBS is keen to expand to Indonesia and Malaysia. “The bank continues to look for potential opportunities to enter the Malaysian market and break into the MYR business in addition to the current USD business,” GS says in an update on Jan 13.
Meanwhile, Bursa-listed Public Bank has a limited presence in Singapore. In October 2024, the Teh family, whose late patriarch Teh Hong Piow founded the bank in 1965, revealed plans to reduce their stake from 23.41% to 10% over the next five years.
“These shares would be sold to Public Bank employees, directors, and shareholders, potentially at a discount. Transaction details will be announced over time. The 13.41% stake is worth RM12 billion,” estimates JP Morgan. “This size of disposal, evenly spread over five years, will likely create a significant overhang on the stock price, limiting immediate upside. Hence, we maintain neutral on the stock.”
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
Would DBS be interested in this stake? Owning minority stakes in banks is likely to impact the acquiring bank’s capital ratios. For instance, based on its Pillar 3 announcement, OCBC has a capital deduction for its investment in the Bank of Ningbo.
Still, it appears that Public Bank has a clear strategy for JS-SEZ. “The group intends to be selective with its involvement [in the JS-SEZ so as] to stay well-diversified across its geography and limiting its exposure to large corporates. SMEs are preferred (making up 18% of total loans) for their typically higher margin, as the bank stands to benefit from the supply chain spillover from upcoming developments such as data centre and other infrastructure projects,” Kenanga Research says in a Jan 9 update.
CIMB Bank stands in good stead as well. According to Bloomberg Intelligence, CIMB Group’s prospects could brighten in 2025, with net-interest income likely to improve on a relatively robust margin, led by product repricing and as it continues to grow its low-cost deposit base.
“The bank could continue to cut costs, and we expect it to navigate regulatory changes with relative ease. Lending could gradually pick up, though still in the mid-single digits, on the rise in trade and business activity with the development of the JS-SEZ and greater-than-peer exposure to the Indonesian market,” adds Bloomberg Intelligence.
In a Malaysian bank report, UOBKH says it is expecting “stronger loan growth in anticipation of a further uptick in business loans. We expect system loans growth [in Malaysia] to fall within the range of 5.5%-6% in 2024, with the momentum continuing into 2025 (6%- 7%). This upturn will be driven by a stronger business loans growth projection of 6%-6.5%, compared with the current growth rate of 4.6% in 9M2024,” UOBKH says.
Factors supporting loan growth include a multiplier effect from stronger foreign direct investment, solid private investment growth forecasted at 8.5% in 2025, and the ongoing recovery of the tourism sector..
Continuous catalyst from Malaysian equities
On the Singapore side, UOBKH appears to be the dark horse beneficiary from the JS-SEZ. Its financial statement for the six months to June 30, 2024, its 1HFY2024, shows that Malaysia accounted for around 9% of UOBKH’s profit before tax. The group’s main contributor to PBT was Singapore (65% of PBT), followed by Hong Kong (24%), and then Malaysia. Thailand was the smallest contributor.
HSBC Research highlights that the Singapore and Malaysian equity markets delivered strong returns in 2024, outpacing the broader Asia markets. This was driven by higher rates (boosting banks’ NIM) and robust AI and data centre investments.
“The JS-SEZ will likely provide further incentives for the potential flow of investment and developments, especially in the Johor region. We see this as a continuous catalyst for the Malaysian equity markets with key sectors such as banks, construction, healthcare, real estate, and utilities being the key beneficiaries,” adds HSBC.
Companies seeking the incentives offered in the JS-SEZ Bursa would likely tap the equity and bond markets. In that event, Bursa has been much more active than the SGX in raising capital for follow-ons and IPOs. At any rate, Bursa had 55 IPOs in 2024, of which 11 were on the mainboard, 40 on ACE and four on LEAP. The SGX had four IPOs on Catalist, a couple of secondary listings on the mainboard, and a couple of ETFs listed on the mainboard.
However, a national effort is underway to revitalise the Singapore stock market. Should this succeed and a Big Bang scenario materialise, UOBKH could emerge as a rare beneficiary on both sides of the Causeway.
In 1HFY2024, UOBKH announced a net profit of $113.9 million, up 63% y-o-y, maintaining the earnings momentum from FY2023, where net profit rose by 66% y-o-y to $170.8 million. In 2023, UOBKH declared a dividend of 9.2 cents, representing a 50% payout ratio. Market watchers believe UOBKH can maintain an annual dividend of 8 cents to 10 cents.
At its last traded price of $1.67, the dividend yield is 5.9%. Based on a 50% payout ratio, UOBKH’s dividends in FY2024 are likely to be higher than those in FY2023.
