RHB IB maintains 'overweight' call on real estate sector, identifying UEM as top proxy in Johor

• In a sector update on Friday, the research house said that if the government decides to proceed with the Johor Light Rail Transit (LRT) and Kuala Lumpur-Singapore High-Speed Rail (HSR) projects, it could boost demand for residential, commercial and industrial properties in Iskandar Malaysia in the coming years, leading to an increase in prices for strategically located parcels of land.

KUALA LUMPUR (Jan 26): RHB Investment Bank Research (RHB IB) has maintained its "overweight" rating on the real estate sector, identifying UEM Sunrise Bhd as the top proxy for the segment, with potential benefits extending to Sunway Bhd, IOI Properties and Eco World Development Group Bhd if significant railway infrastructure projects materialise in Johor.

In a sector update on Friday, the research house said that if the government decides to proceed with the Johor Light Rail Transit (LRT) and Kuala Lumpur-Singapore High-Speed Rail (HSR) projects, it could boost demand for residential, commercial and industrial properties in Iskandar Malaysia in the coming years, leading to an increase in prices for strategically located parcels of land.

With a current population of 4.01 million in Johor and 5.5 million in Singapore, RHB IB said that the implementation of LRT and HSR projects could transform Southern Johor into a major city comparable to the Klang Valley.

The research house added that the proposed LRT lines and terminal stations may be located at Ikea Tebrau, Iskandar Puteri (Legoland or Forest City) and Senai, while the HSR may have a station at Iskandar Puteri or Forest City.

"Growth opportunities are anticipated in the Tuas Link area due to the concentration of the new transport system, with UEMS, Sunway and Eco World being major landowners in the region," it added.

On the HSR project, RHB IB highlighted that Johor will have the longest HSR alignment, with UEMS being a prime beneficiary, particularly if the last HSR station in Malaysia is located in Iskandar Puteri.

RHB IB said that continued positive news about significant economic and infrastructure developments is expected to uplift market sentiment, and with major infrastructure projects in the pipeline, there is potential for further improvement in the sector's valuation.

It added that the real estate sector is currently trading at a 55% discount to revalued net asset value (RNAV), aligning with the long-term historical mean.

"Even during upcycles, the historical +1 standard deviation valuation is at a 42% discount to RNAV," it said.

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