New investments to support property demand in Penang

Property and infrastructure sector

Maintain overweight on infrastructure sector while neutral on property sector. The Penang state government is pushing for the economy to move up the value chain by encouraging knowledge-intensive and innovation-led manufacturing and services.

Temasek’s proposed joint venture with Penang Development Corp (PDC) to develop a business processing outsourcing centre and an international technology park in Penang with an estimated gross development value (GDV) of RM11.3 billion is a feather in the cap for the state in attracting new foreign direct investments.

The jobs created from new investments would support population growth and long-term property demand in Penang.

This has attracted property development companies such as Eastern and Oriental Bhd (E&O), Eco World Development Group Bhd (Eco World) and Ewein Bhd (Ewein) to embark on new large-scale mixed developments in the state with a total GDV of RM60 billion.

E&O has the highest exposure to Penang with property projects in the state comprising 77% of their GDV of RM34 billion.

The state government is aware of the potential infrastructure bottlenecks that would be created by the rapid development of new industries and population growth.

The proposed RM27 billion Penang Transport Master Plan (PTMP) should cater to infrastructure needs of the state up to 2030.

Six consortiums have submitted bids to be the project delivery partner (PDP) for the PTMP and a decision is expected by September.

We believe Gamuda Bhd will likely be appointed the PDP for the project. Being one of the largest contractors in Penang, IJM Corp Bhd is expected to win a substantial portion of construction works for the PTMP.

The Penang state government has shown its commitment and dynamism to drive the long-term economic growth of the state. Despite limited funding support from the federal government, the state government’s effort to work together with the private sector through public private partnership initiatives should support the long-term infrastructure development of the state.

Our top “buy” for infrastructure and property exposure to Penang, and companies which would benefit from the rapid development of the state are Gamuda, IJM Corp and E&O. — Affin Hwang Capital Research, July 20.

This article first appeared in The Edge Financial Daily, on July 21, 2015.