Earlier this year, analysts Thilan Wickramasinghe and Chua Hak Bin of Maybank Securities listed the “Winning SEZ Dozen” for the Johor-Singapore Special Economic Zone (JS-SEZ).
These are their top pick of stocks that can potentially see earnings and multiple upgrades from their medium-term gearing to the investment themes that they have identified.
The list includes Singapore-listed names and Bursa Malaysia-listed counters, including Axis REIT and SP Setia, which fall within the expanding infrastructure and property investments theme.
In their report, Wickramasinghe and Chua noted that potential developments at the SEZ should be positive for Malaysian property developers with landbanks in Johor and the construction and infrastructure players. Singapore and Malaysian REITs, especially those with data centres and industrial and commercial exposure, could also benefit from this.
For REITs, Maybank is upbeat on Axis REIT’s active acquisition strategy and development of industrial assets. At the end of 2023, Johor accounts for 36% of its portfolio by net lettable area (NLA). The analysts believe higher industrial subsector transaction volume in Johor from the SEZ should help the trust capture the growth of the current and future regional industrial hubs.
In 2QFY2024 ended June 30, Axis REIT’s net property income increased 12.86% y-o-y to RM65.95 million ($18.98 million). This came from higher revenue, which rose 11.8% to RM76.53 million. In its filing, the REIT manager is optimistic that the trust will maintain its current performance for the full year.
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Hong Leong Investment Bank (HLIB) analysts agree, maintaining their “buy” rating on Axis REIT following the release of its results. The analysts expect Axis to continue seeing sustained earnings in subsequent quarters, aided by three recently completed acquisitions, two pending acquisitions, a disposal, and stable occupancy rates.
They also highlight that out of the 17.6% of total NLA for renewal in FY2024, 52% of tenancies have been renewed, while an additional 8.6% has been re-tenanted.
SP Setia is one of Maybank’s top picks for the property development sector. The company has 960 acres of land in Johor Bahru, with projects such as Setia Tropika, Setia Eco Cascadia and Bukit Indah.
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Maybank highlights that property prices in Johor Bahru are enjoying upward momentum as news flow on the prospects of the SEZ gathers pace. The analysts estimate that a successful land sale could unlock RM320 million of gains for SP Setia.
“Additionally, SP Setia is in advanced negotiations with potential joint venture partners for a 16-acre commercial land in Setia Alam and a 307-acre industrial land in Tanjung Kupang. These could also result in land sales proceeds going forward,” they add.
SP Setia plans to lower its gearing and unlock value through a REIT structure. This could serve as a vehicle to inject the company’s mature assets in the future, enabling capital recycling. Maybank believes this could be a positive catalyst in the medium term.
Analysts at HLIB expect SP Setia to see bumper earnings in FY2024 due to expected substantial gains from two land sales in Johor, namely Taman Pelangi Indah 2 and Taman Pelangi. Its balance sheet shows encouraging improvement, with net gearing in 1QFY2024 declining to 63.1% from 68.2% in 1QFY2023.
