UOB Economic-Treasury Research Company Reg No. 193500026Z Jimmy Koh [email protected] Lena Tan [email protected] Tuesday, 17 June 2014 Flash Notes Iskandar Malaysia: Treading The Extensive Journey Investments have been steadily streaming into Iskandar with total cumulative investments reaching MYR131.6bn by end-2013, a strong increase of 24% from the previous year. The JB-Singapore RTS link will serve the needs of increasing demand from individuals traveling between the two countries for work, especially with the continued growth of Iskandar Malaysia. Indeed, this will help to ease up the traffic along the causeway and potentially reduce traveling time. New supply is huge, representing more than 20% of existing residential stocks in Iskandar. We believe these residential units will be completed before the occupancy rate in Iskandar reaches its potential. We expect more Singaporeans, especially the lower-to-middle income group, seeking medical help in Malaysia as medical costs in Singapore continue trending higher. We believe the region will continue to grow as more catalytic projects are being unveiled gradually. Time is of the essence for Iskandar to bear fruits while the successful collaboration between the two countries is also critical. Background It has been more than seven years since Iskandar Malaysia (IM) was incepted in November 2006. A myriad of developments have since sprung across the 2,217 sq km land. A Comprehensive Development Plan (CDP) was developed to steer the overall development framework with special focus on five flagship zones: . Flagship A: Johor Bahru City Centre Central Business District and State Capital of Johor Key Economic Activities: financial services, commerce and retail, arts and culture, hospitality, urban tourism, electrical and electronics and food processing Key Landmarks: Danga Bay Key Players: Citigroup, HSBC, Kuwait Finance House, YKK, Lion Group, Sumitomo, Mah Sing and Crescendo Flagship B: Nusajaya Projected population growth of 75,000 in 2010 to 500,000 by 2025 Key Economic Activities: mixed property development, state & federal administration and logistics Key Landmarks: Kota Iskandar (Johor New State Admin Centre), Puteri Harbour, EduCity, LegoLand Malaysia, SiLC, Medini and Afiat Healthpark Key Players: UEM Land, Iskandar Investment Berhad, Mulpha International Bhd and SP Setia Flagship C: Western Gate Development Free-Trade Zone Key Economic Activities: port and marine services, warehousing, logistics, hi-tech manufacturing, petrochemical industry and food production Key Landmarks: Port of Tanjung Pelepas (PTP), Second Link Expressway Key Players: MMC Corp Bhd URL: www.uobgroup.com/research Email: [email protected] Flash Notes Tuesday, 17 June 2014 Page 2 Flagship D: Eastern Gate Development Key industrial and manufacturing hub in Southern Region Key Economic Activities: chemical, oleochemical, food products, engineering-based industries, ports and logistics, warehousing and research and development Key Landmarks: Asia Pacific Trade & Expo City, Pasir Gudang Industrial Park, Pasir Gudang Circuit and Johor Port Key Players: Panasonic, Titan, Western Digital and IOI Loders Flagship E: Senai-Skudai Airport City Key Economic Activities: airport services, engineering, electrical and electronics and education Key Landmarks: Senai International Airport, Senai Aerospace Park, MSC Malaysia Cyberport and Johor Premium Outlets Key Players: Lee Rubber, Boustead, Genting Property, IOI Properties and Johor Corporation The Five Flagships In Iskandar Malaysia At A Glance Indicators 2005 2025F GDP (PPP) 20.0 93.3 USD bn GDP per capita (PPP) 14,790 31,100 USD Population Size 1.4 3.0 Million Employment 0.6 1.4 Million Source: IRDA Source: IRDA Investments Growing Well Investments have been steadily streaming into Iskandar with total cumulative investments reaching MYR131.6bn by end- 2013, a strong increase of 24% from the previous year. Growing local participations overtook the foreigners in 2009 and have since dominated investments in Iskandar at 64% of total cumulative investment. There was also strong interest from neighbouring Singaporeans, which accounted for the largest foreign investor group with investments of MYR11.0bn or 23.5% of total foreign investments as at end-2013. This is not surprising with the Singapore’s government throwing its weight behind the initiative. Outside of the region, USA grew in importance with investments surging five-folds from MYR0.77bn in 2012 to MYR3.98bn (mainly in the manufacturing sector) in 2013. The country is now ranked the third largest foreign investor in Iskandar Malaysia, after Singapore and Spain. Notable investors include Hersheys, which invested MYR816mn (the company single-largest investment in Asia) in building a state-of-the-art confectionery plant in Iskandar-Senai. The 700,000 sq ft chocolate factory, is expected to employ more than 400 locals in various capacities including management roles when it is completed in 2015. URL: www.uobgroup.com/research Email: [email protected] Flash Notes Tuesday, 17 June 2014 Page 3 Total Cumulative Committed Investments (MYR bn) Total Cumulative Committed Investments (MYR bn) Government Foreign Properties Local Others 140 Manufacturing Committed Investments 131.6 120 140 47.02 8.3 100 120 CAGR: 42% 106.3 38.53 84.8 100 7.3 33.3 80 69.5 80 34.14 35.1 60 55.6 28.78 60 41.8 43.3 40 25.48 84.62 25.8 28.8 40 22.83 67.78 11.3 50.64 20 20 40.70 46.8 35.1 30.08 18.92 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 Source: IRDA, UOB Economic-Treasury Research Source: IRDA, UOB Economic-Treasury Research Foreign Investments Into Iskandar (MYR bn) Country Dec 2012 Dec 2013 % Share of Total Foreign Investments (2013) Singapore 6.32 11.04 23.5 Spain 4.18 4.18 8.9 USA 0.77 3.98 8.5 Japan 3.74 3.93 8.4 Netherlands 2.84 2.84 6.0 Others 20.68 21.05 44.8 Total 38.53 47.02 100 Source: IRDA, News Reports The Influential G-G Collaboration What sets the Iskandar Malaysia apart from other development initiatives in Malaysia (e.g. Multimedia Super Corridor) was the involvement of the Singapore’s government. The G-G collaboration is encouraging and has been ushering in investments from Singapore into Iskandar Malaysia. [see earlier section on ‘Investments Growing Well on Influential G-G Collaboration] The landmark announcement of the Points of Agreement (POA) breakthrough by the prime ministers of both countries in 2010, marked an end to the long-standing land disputes between the two countries. Under the land swap arrangement, Malaysia was given four parcels of land in Marina South and two more in Ophir-Rochor in exchange for giving up Malayan railway land in Singapore. A 60-40 joint venture company, called M+S Private Limited, owned by Malaysia’s Khazanah and Singapore’s Temasek will undertake the development of the land parcels in Singapore. Another 50-50 joint venture company will be set up to develop two iconic wellness projects, Avira and Afiniti, in Iskandar Malaysia. Further collaboration between the two countries includes the JB-Singapore Rapid Transit System (RTS) and the Singapore-KL High Speed Rail (HSR). JB-Singapore Rapid Transit System (RTS) Link At their Retreat in May 2010, Prime Minister Lee Hsien Loong and Prime Minister Dato’ Sri Mohd Najib Tun Abdul Razak agreed to jointly develop a Rapid Transit System (RTS) Link aimed at enhancing connectivity between Iskandar Malaysia and Singapore. The terminating stations of the RTS link will be in the vicinity of JB Sentral and around Republic Polytechnic in Singapore. Plan is to integrate the RTS that should be operational by 2019, with the Singapore’s Thomson Line, likely the Woodlands North Station (Phase 1), targeted to be ready in the same year as well. The RTS link will have CIQ facility co-located at both Singapore and in Johor Bahru so that commuters only need to clear immigration at a single location for each way of travel. URL: www.uobgroup.com/research Email: [email protected] Flash Notes Tuesday, 17 June 2014 Page 4 At A Glance According to Singapore’s Transport Minister, the preliminary engineering study with Malaysia has Project Name JB-Singapore Rapid Transit System (RTS) been completed. Both countries are working to Progress Joint Engineering Study Phase 1 completed. finalise the alignment and station location in Time Line To identify a preferred and agreed option for the Johor as well as to commence the second part of RTS link by end 2014 the study that focus on the detailed design of the Distance 4km in total system. The joint engineering study will be co- Terminal Locations In the vicinity of JB Central in Malaysia and funded by both countries. Republic Polytechnic in Singapore Customs Immigra- Co-located at both ends (ie person departing High Speed Rail (HSR) Link tion Quarantine (CIQ) from Singapore will go through CIQ at Singa- In February 2013, Singapore and Malaysia had pore only. There will be no CIQ on entry into Ma- agreed to build a high speed rail link between laysia. Same applies when departing Malaysia. Kuala Lumpur and Singapore, in a move that both Target Operations 2019 governments called a “game changer”. A pre- Source: IRDA, News Reports feasibility study has been done on the economic viability of the high speed rail. For Malaysia, the Proposed RTS Link Between Singapore And JB terminal will be located in Bandar Malaysia, at the current site of its air force base in Sungei Besi. While in Singapore, the possible terminus stations are Tuas West, Jurong East or the city centre, as announced by Prime Minister Lee when he was in Kuala Lumpur for the fifth Malaysia-Singapore Leaders’ Retreat in April this year. The Singapore government will make its decision within the next year.