MNC Priority Choice: AME 5239

Hong Leong Investment Bank Research (HLIB Research) released an outlook report on the real estate sector. The ongoing trade war between China and the US, and political conflicts between Russia and Ukraine, and Israel and Palestine have caused international manufacturers to relocate production bases to other regions to manage risk in the supply chain.

Malaysia has benefited from a mediocre political position, attracting many multinational organizations (MNC) to set up factories. Coupled with the explosive growth of data centers this year, it has also encouraged more commercial land sales to cash out.

“According to the current situation, industry is more attractive than residential development, and developers can enjoy higher profits and shorter construction periods.

“Of the 8 developers we've tracked, 7 have set foot or are preparing to get involved in industrial development.”

This is a positive market promotion. Developers can reduce their dependence on the housing market, wait for the market's supply and demand to return to balance, and then attack.

“Actual data” analysis suggests “increase in holdings”

Hong Leong Investment Bank studies how industrial development has become a key project for many developers through “actual data”.

Assuming that the operator implements a project with a gross development value (GDV) of RM0.1 billion. If it is an industrial development, the net profit can reach 30% or RM30 million, while high-rise residences are only 20% or RM20 million, a gap of 50%.

Industrial development also has a faster return on capital than high-rise housing. For example, when an industrial development project is completed in the second year, it will generate a net profit of RM30 million. If the operator invests capital in the next new project, it will bring an additional RM9 million net profit in the fourth year. On the other hand, high-rise residential development takes 4 years to complete, and it took 4 years to earn RM20 million.

According to the report, the industrial development market has developed rapidly in recent years. For example, the Sennami industry entered industrial development in 2020. The sales ratio in the first year accounted for 14.3% of the company's overall development, increased to 18% in 2022, and surpassed 20% to 24.8% in 2023.

Hong Leong Investment Bank Research gave the domestic real estate sector an “gain” rating. Preferred stocks include IOI Real Estate (IOIPG, 5249, Main Board Industrial Stock), Qiao Feng Holdings (OSK, 5053, Main Board Industrial Stock), Sunami Industries, and Sunway (SUNWAY, 5211, Main Board Industrial Stock).

After the Sino-US trade war

An endless source of net foreign investment

After the outbreak of the Sino-US trade war in 2018, China's realized net foreign direct investment reached an average of RM54.8 billion per year from 2021 to 2023 (excluding the 2020 COVID-19 year), up 78.3% from 2018.

A sharp increase of 132% compared to 2018

According to the Hong Leong Investment Bank research report, although net foreign direct investment has slowed in 2023, it is believed to be related to the global economic slowdown, and other Southeast Asian countries are also facing the decline in foreign investment.

According to data from the Malaysian Investment Development Authority (MIDA), the average amount of foreign direct investment approved per year from 2021 to 2023 reached RM186.8 billion, a sharp increase of 132% over 2018.

As Prime Minister Dato' Seri Anwar visited many countries last year, actively promoted Malaysia as an investor to China, Singapore, Japan, South Korea, the United Arab Emirates (UAE), Saudi Arabia, and the United States, and received investment promises worth RM347 billion, foreign direct investment is expected to maintain a strong momentum in the next few years.

The report emphasizes that China's close to China and moderate political position can simultaneously attract investment from Eastern and Western economies, and its location strategy is close to major trade routes, including the Malacca Strait, perfect transportation, low labor costs and skilled workers, and friendly government policies, so that Malaysia continues to benefit from the Sino-US trade war.

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