Renewable energy and ESG are the 2 investment trump cards of Sarawak.

Exclusive report: Xiao Weiyang

While Malaysia is becoming a darling of foreign investment, Sarawak is also actively developing its regional economy, hoping to become an economic hub in Malaysia and even in the region.

Internally, Sarawak has significantly increased its development expenses and launched more infrastructure projects. Externally, the state government actively attracts high-tech investments to achieve industrial upgrading.

In the process, Sarawak is not fighting alone; the federal government is also providing support behind the scenes. Prime Minister Anwar Ibrahim has expressed full confidence in the economic potential of Sarawak.

As the economic gears start to turn, which projects are receiving attention? And which Malaysian stocks should investors pay attention to? After compiling the opinions of major brokerages and current affairs topics, Nanyang Siang Pau presents them one by one to readers.

As Malaysia becomes a darling of foreign investment due to the global supply chain realignment, Sarawak, located on the island of Borneo, is also gearing up for plans to upgrade itself into an economic hub through a series of investment projects. Which development projects are receiving attention? And which Malaysian listed companies are involved, warranting the attention of investors?

When it comes to boosting the economy, Sarawak has been putting in a lot of effort in recent years. The state has set a target to attract over 100 billion ringgit of capital injection in the next 6 years, and aims to become a "developed state" by 2030 at the latest. By then, Sarawak's Gross Domestic Product (GDP) is expected to reach 282 billion ringgit, which is 93% higher than the 146 billion ringgit in 2023.

In line with the above-mentioned target, Sarawak is also investing heavily to stimulate the economy. Chief Minister Datuk Patinggi Abang Johari announced through the "Sarawak State Budget 2024" that 9 billion ringgit will be allocated this year to fund development projects, which is an unprecedented amount.

"This is the largest budget in the history of the Sarawak government. We are adopting an expansionary budget, investing heavily in infrastructure, with the well-being of the people as our top priority."

On the path to becoming an economic powerhouse, Sarawak is not going it alone. The federal government is also providing support behind the scenes. Looking back in history, the development budget allocated to Sarawak by the federal government between 2018 and 2022 has hovered around 4.3 billion to 4.6 billion ringgit.

However, in 2023, the development budget soared to 5.6 billion ringgit; and in 2024, it was further increased to 5.8 billion ringgit, the highest amount in history.

Prime Minister Datuk Seri Anwar Ibrahim said in June this year that, thanks to political stability and clear policy direction, Sarawak has great development potential. "In addition to well-known states such as Penang, Selangor, and Johor, Sarawak is also rising to become a new economic giant of our country."

"During my recent visits to several countries, including Germany and Japan, local investors have shown full confidence in the development potential of Sarawak. The state has been regarded by foreign capital as a major stronghold in this region."

Turning our attention to investment, according to data released by the Sarawak Economic Planning Unit, in the first half of 2023, the state's manufacturing sector approved a total investment of 4.946 billion46 million ringgit, accounting for 95% of the total for the year 2022, of which 88% was foreign direct investment (FDI). At the same time, 92% of the investment flowed into the electronics and electrical, and basic metals sectors.

On the other hand, Sarawak Deputy Prime Minister Datuk Amar Awang Tengah Ali Hasan revealed in May this year that a total investment of 22.8 billion ringgit was approved in the state last year, with manufacturing being the most favored industry.

With Sarawak's economic development in full swing, which investment projects and Malaysian stocks involved are worth paying attention to?

In order to achieve economic goals, the Sarawak government has launched the "Post-Pandemic Development Strategy 2030" (PCDS 2030), which identifies infrastructure, utilities, transportation, manufacturing, and renewable energy as key development projects to allocate resources accurately.

The industries mentioned by the state government are diverse. Which projects are currently worth investors' attention? After reading various investment bank research reports and official statements, this publication presents them one by one to readers.

According to the research of Xingye Investment Bank, thanks to the development of large government expenditures, more infrastructure projects will be launched, benefiting the construction industry and contractors.

According to the data from the Construction Industry Development Board (CIDB) of Malaysia, the value of construction contracts awarded in Sarawak in 2023 reached 9.9 billion ringgit, ranking fifth in the country, second only to Selangor, Johor, Kuala Lumpur, and Penang. In addition, the value of completed projects in the state in the same year reached 14.6 billion ringgit, setting a new record in nearly 7 months.

What potential projects are receiving attention in the booming construction activities in Sarawak?

Let's start with road projects. In the "2024 Sarawak Financial Budget", the state government has allocated 0.6 billion62 million ringgit for various road and bridge projects. The largest projects among them include the Second Trunk Road (STR), the second phase of the Pan-Borneo Highway (PBH), and the Sarawak-Sabah Link Road project (SSLR).

As for the STR, once this 5.6 billion ringgit project is completed, the travel time between Kuching and Sibu will be significantly reduced from over 300 kilometers to 225 kilometers. According to Xingye Investment Bank's research, the STR consists of a total of 20 contracts, of which 8 have already been awarded.

As the awareness of carbon reduction prevails, Sarawak is also actively positioning itself as a renewable energy hub.

The state government has set three major goals: first, to achieve 60% of total energy from renewable sources by 2030, with hydropower being the top priority; second, to reduce annual carbon emissions by 0.6 million tons through electrification of transportation within the state; third, to actively export renewable energy and generate revenue that accounts for 15% of total revenue.

Currently, Sarawak is home to three large hydroelectric power stations: Batang Ai, Bakun, and Murum dams, with a total capacity of 2,000 megawatts (MW). In fact, as early as 2020, hydropower accounted for 68% of Sarawak's total energy, meaning that the state has already achieved its energy transition target ahead of schedule.

Nevertheless, Sarawak continues to expand its hydropower capacity. Another large-scale hydropower project, the Baleh dam, is still under construction and is expected to be operational by 2027, bringing Sarawak's hydropower capacity to 4,737 megawatts.

As for non-Sarawak contractors, analysts are bullish on Jinshi Da's competitive advantage because the company has experience in developing hydropower projects in Sabah.

In addition to hydroelectric power generation, another focus of Sarawak's renewable energy is hydrogen energy generation. Abang Johari has set a target that by 2027, Sarawak will become a hydrogen energy hub, "achieving this goal is possible, Sarawak is on the right track."

According to the findings of Kenanga Investment Bank, the Kuching Urban Transportation System (KUTS) in Sarawak will mainly use hydrogen energy. This investment will also generate significant spillover effects, benefiting developers, contractors, and building material suppliers.

On the other hand, with the support of investors from Japan and South Korea, the Sarawak Economic Development Corporation (SEDC) is currently working on two hydrogen development projects with a total value of about 19.8 billion ringgit. Industrial research believes that Hock Peng Ming could be a potential beneficiary, as the company has established a new subsidiary named KKB Energy to offer engineering and manufacturing services for public and renewable energy projects.

With the influx of foreign capital, Johor in southern West Malaysia is transforming into a data center hub. Seeing the attractive value-added, Sarawak is also ambitious to become a regional hot spot for data centers.

Currently, Sibu in Sarawak is expected to have a data center developed by Irix Telecommunications Company and will be operational in 2022. In June of last year, a consortium formed by Sarawak and Singapore - FutureData announced plans to build another data center in Samarahan Province.

In November of the same year, Abang Johari declared that by no later than 2030, Sarawak will hold at least 5 'Tier 5 data centers' to facilitate cross-border data flow and promote economic growth. The term 'Tier 5' refers to the highest standards in terms of technology requirements and security, ensuring that there will never be any unforeseen disconnections.

Sarawak does have certain advantages in building data centers, with the biggest selling point being an abundant energy supply, including green energy that global investors value.

According to predictions from the Sarawak Utilities and Communications Department, by 2030, the state's annual power generation could reach 9,529 megawatts, while exports to Sabah and Singapore would only account for 1,130 megawatts or 12%.

In other words, there is still 8,399 megawatts of electricity available to meet the state's economic activity needs. In contrast, concerns about power and water shortages are beginning to arise in Johor after attracting a large number of data center investments.

Sarawak's economic activities are in full swing. Which Malaysian stocks are highly regarded and become potential winners?

Among the most favored by brokerage firms is Jinwu. BIMB Investment Banking is confident that Jinwu, which has participated in infrastructure projects such as PBH and STR, has the ability to secure more projects, including in the field of renewable energy.

"Seeing that the Sarawak government may award more contracts in the fields of infrastructure and renewable energy, coupled with Jinwu's extensive experience, its business may continue to grow."

Analysts also mentioned that within the next 5 years, Jinwu will invest 2 billion ringgit in the field of renewable energy, and its renewable energy asset portfolio will increase to over 800 megawatts within a few years. With many positive factors, analysts have given a "buy" rating with a target price of 6.30 ringgit.

Industrial & Commercial Bank Research holds the same view, suggesting that Jinwu can obtain more dam contracts in Sarawak based on its experience with the Sabah Padas Dam project. Analysts also recommend buying Jinwu, with a target price of 6.46 ringgit.

On the other hand, Xingye Investment Bank research and Kenanga Investment Bank research named Xu Jiaming, who has the potential to share more engineering projects. Xingye Investment Bank research has listed it as a preferred stock in the infrastructure sector, "The company is involved in a diverse range of infrastructure projects in Sarawak, including highways, water supply, oil and gas facilities, etc."

Analysts also mentioned that Xu Jiaming is still in a net cash position, which means that there is enough borrowing space for future business expansion. Given a "buy" rating with a target price of RM 2.02.

IJM plans to build a pile foundation base.

Last year, IJM signed a memorandum of understanding (MOU) with SEDC to establish a pile foundation manufacturing base in Sarawak. In addition, IJM's joint venture company also secured a civil engineering contract worth RM 0.26 billion in Kuching.

Based on its impressive potential, Xingye Investment Bank research is calling for the purchase of IJM with a target price of RM 2.47.

The potential of Ibraq is also not to be underestimated. In November of last year, its subsidiary joint venture company won a contract worth RM 0.569 billion for the Kuching Automated Rapid Transit (ART) system, which has attracted attention.

In the same year, Ibrahim also obtained a contract worth 500.30 million ringgit, responsible for a portion of the STR project.