Executive Summary
Southern Corridor next investment frontier. In 2023, Johor’s GDP rose 4.1% yoy to RM148.2bn, marking it the third largest contributor to the country in terms of state, behind Selangor (28.7%) and Kuala Lumpur (17.7%). Located in the Iskandar Malaysia region, we are positive that Johor-Singapore Special Economic Zone (JS-SEZ) initiative will serve as a transformative catalyst to alleviate global competitiveness between both nations and consequently cement Johor’s position as the third biggest contributor to the nation GDP in coming years.
Stepping up towards Maju Johor 2030 vision. The JS-SEZ development aimed at creating a hub for investments and economic activities through the provision of multiple entry visas, special passes with green lanes, special tax incentives, exemptions for business licenses, robust infrastructure, and the availability of a skilled and knowledgeable workforce is regarded as a major milestone in realising Maju Johor 2030 vision. Maju Johor 2030 focus onto six key strategic aspects namely good governance, sustainable economic development, enhancing social safety net, improving facilities and basic amenities, security, cleanliness and the environment, and special focus on the youth.
Development to be supported by enhanced cross-border traffic. In bid to reduce the congestion on Johor-Singapore Causeway, the RTS Link (construction at 95% completion and on track for operational on 1 Jan 2027) will serve as a game changer towards a more seamless connectivity between both countries. This along with the Elevated Automated Rapid Transit (ART) that spans across 50km with 32 stations, should ensure seamless movement within Greater Johor Bahru. Within the nation, key developments such as (i) Gemas-Johor Bahru Electrified Double-Track Rail Project (Gemas-JB EDTP) on track for operational in Q3 2025, (ii) expansion of the Ayer Hitam-Skudai stretch of the PLUS Expressway to six lanes, and (iii) East Coast Expressway Phase 4 (LPT4) from Gambang, Pahang to Johor Bahru are expected to improve connectivity and drive trade activities within the nation.
Thriving real estate sector. With potential 20,000 of high skilled jobs creation under JS-SEZ and together with other key developments such as Forest City’s special financial zone (SFZ), we believe demand for rental and housing within the Iskandar Malaysia region will flourish over the foreseeable future. Already, Johor’s property transaction rose 58.2% yoy to 40,561 units in 2023 – highlighting a robust demand, while 1H 2024 property transaction stood at 18,648 units. Consequently, prices of those property projects located in Johor Bahru and close to the RTS Link all saw rental yields and selling prices appreciated by c.15-30% in recent times.
JS-SEZ key beneficiaries: We favour property developers with huge landbank sitting in the Iskandar Malaysia region such as UEMS, IWCITY, SUNWAY and LAGENDA. For contractors with exposures to infra-related works in Johor, we like SUNCON and IJM. Other potential beneficiaries riding onto Johor state thematic growth are PEKAT, SCGBHD, UUE, TENAGA, RANHILL, PCHEM, MAYBANK, CIMB, TM, KLK, SDG, SWIFT, PETGAS and DIALOG.
Key focus towards overseas developments such as further progress over US interest rate cuts, potential trade conflict between US-China and geopolitical tensions across the globe will continue to dictate market directions, moving into 2025, Back home, investors will be bracing over details surrounding the implementation of blanket subsidies removal for RON95.
With interest rate cut took center stage in the US towards late 2024, we opine the further rate cuts remains on the horizon, albeit potentially at a slower pace. Given that inflation remains sticky at this current juncture (Nov 2024 reading recorded 2.7% yoy rise) and is still a distant from the US Fed long-term target of 2.0%, we expect two rate cuts from the US Federal Reserve throughout 2025. Still, we do not discount for additional rate cuts, should there be signs of economic slowdown arising potentially from the escalation of trade tension between the world two largest economic powerhouse.
We are adopting a more selective stance in view of potential market volatility stemming from the trade tension between US-China. Upsides potentials remain on the cards, premised to the stability in domestic political landscape, prospects of corporate earnings growth and stability in economic growth along with the improved market sentiment towards late-2024.
Valuations remains fairly attractive with the FBM KLCI trading at P/E multiples for 2025F/2026F at 14.2x/13.1x vis-à-vis its five-year average of 16.7x, implying potential upsides in our view. This will be further reinforced by corporate earnings growth forecast in 2025F with EPS set to expand +10.4% yoy, mainly anchored by banking, utilities and plantations heavyweights.
After the key index performed a late surge to closed at 1,642.33 at end-2024; nearing our in-house target of 1,650, we made a slight upward revision in FBM KLCI end-2025F target at 1,760 (from 1,750) based on assigned 15.3x P/E multiple, following some house-keeping revolving around the inclusion of 99 Speed Mart Retail Holdings Bhd as well as Gamuda Bhd, replacing two Genting-related companies in the key index component list. We also our introduced 2026F year-end target at 1,810, based on assigned 14.5x PE multiple. The discount of P/E multiple assigned as compared to 2025 is due to potentially slower corporate earnings growth potential in 2026 at +8.6% yoy.
Sector wise, we are upbeat onto utilities sector that is primed for multi-year growth, on surging electricity demand from data centres, increasing adoption of electric vehicles, and the energy transition. This in turn set a stage for the renewable energy (RE) sector to ride onto a clear and firm government-led policies under NETR in bid to achieve net-zero emissions by 2050.
Export oriented technology sector will capitalise onto global trade diversion, recovery in global semiconductor sales that is entering into a new upcycle as well as improving global consumer electronics sales along with local government-led initiatives such as the National Semiconductor Strategy (NSS) to attract FDI.
We also remain in favour of datacentre (DC) supply chain players that are leveraging onto the AI and cloud computing boom. Malaysia will remain as a preferred investment destination with abundant and relatively inexpensive land, coupled with adequate infrastructures.
Our top picks for 1H 2025 are HLBANK, SCGBHD, UUE, LAGENDA, SLVEST, PEKAT, INARI, FRONTKN and MALAKOF.
Executive Summary
• Malaysia’s 3Q24 GDP growth held steady at +5.3% yoy (2Q24 at +5.9 yoy), and was in-line with advanced estimate of +5.3% yoy. Growth was driven by (i) strong expansion in overall investment activities, (ii) firmer exports and increase in tourism spending and (iii) resilient household spending.
• For 9M24, the economy expanded +5.2% (9M23 at +3.8% yoy), which largely on track to meet the Government projection of +4.8%-5.3% for 2024 tabled under Budget 2025 as well as our internal projection of +5.2% yoy.
• We expect Malaysia’s Real GDP growth to hold steady in the final quarter, bringing 2024 growth at +5.2% yoy vs. +3.6% yoy in 2023, backed by (i) stability of labour market conditions to be supportive towards domestic consumption, (ii) execution of multi-year projects from approved investments, (iii) stronger trade activities and (iv) implementation of new economic reformation policies such. Meanwhile, 2025 GDP growth is projected at +4.6% yoy (unchanged), pending further details on the shift in US trade policies and tariffs.
• Headline and core inflation is projected at +2.1% yoy and +2.0% yoy in 2024, in line with BNM’s projection of 2.0%-3.5% and 2.0%-3.0% respectively, impacted by the implementation of the diesel subsidy rationalisation and hike of the SST to 8.0%, while 2025F headline and core inflation is forecasted higher at +2.6% yoy and +2.4% yoy, in anticipation of the implementation of RON95 targeted subsidy rationalisation in 2H25.
• With expectations that BNM will maintain OPR at 3.0% towards end-2025, we raised our 2024 and 2025 year-end projection for USD/MYR is between 4.40-4.50 (previously at 4.20-4.30) and 4.30-4.40 (previously at 4.10-4.20) respectively, to account for the intensified trade conflict and a more gradual interest rate cut approach from the US Federal Reserve (three cuts in 2025).
| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.461227 | 4.492117 |
| EUR | 4.632123 | 4.637427 |
| CNY | 0.613888 | 0.614502 |
| HKD | 0.573047 | 0.577030 |
| SGD | 3.281156 | 3.304154 |
