The latest move by Malaysia’s investment arm Khazanah Nasional Bhd to raise its stake in Singapore-listed Parkway Holdings Ltd for S$1.18 billion (RM2.76 billion) which will make the latter its 51.5% subsidiary, reflects the strengthening ties.
CLSA Asia-Pacific Markets said Parkway was the “good beneficiary” among the Singapore companies given its plans to expand its healthcare franchise in Malaysia.
The research house said the “biggest breakthrough” at the Leaders’ Retreat in Singapore last week was the resolution of a two-decade-old issue arising from the disagreement on the ownership of railway land in Tanjung Pagar, Kranji and Woodlands.
Key announcements following the high-level meeting included relocating the Keretapi Tanah Melayu Bhd (KTM) station from Tanjung Pagar to the Woodlands checkpoint by July 1, 2011 and that Malaysia’s customs, immigration and quarantine facilities would be located there.
The two neighbours would establish a company known as M-S Pte Ltd by December to jointly develop the land in Tanjung Pagar, Woodlands, Kranji and Bukit Timah totalling 670 acres. The JV company will be owned 60:40 by Khazanah and Temasek Holdings.
The latest developments would see UEM Land directly benefiting from its assets in Iskandar Malaysia as it is the master developer of Nusajaya in the development region.
CLSA said connectivity to Singapore was set to improve dramatically. Notwithstanding potential investments from Singapore, it said Iskandar Malaysia had to date secured foreign direct investments which include from Newcastle University, Marlborough College, Legoland, Columbia Asia, Pinewood Studios and Premium Outlet.
It said General Electric also signed an MoU with Bio-XCell recently to develop a biotech park in Iskandar Malaysia.
“Our RNAV (revised net asset value) based TP (target price) for UEM Land is RM1.86,” said CLSA.
It said another Malaysian company that would benefit in the long term from enhanced Singapore-Malaysia ties would be Genting Bhd.
“With revised infrastructure connectivity and plans to create a tourism hub in Singapore and Iskandar Malaysia, Genting stands to benefit from stronger visitor arrivals to Resorts Sentosa,” said the research house, adding that its target price for the company was RM9.30.
Other bilateral developments arising from the Lee-Najib meeting would be joint development of a rapid transit system between Tanjung Puteri in Johor Bahru and Singapore which would be integrated with their respective public transport services. They will also jointly develop an iconic project in Iskandar Malaysia.
CLSA said the iconic project would be led at the government level where Khazanah and Temasek would form a 50:50 joint venture for the development.
“We understand this development would involve some private sector investments from both sides,” the research house added.
CLSA said companies in the city-state would benefit from access to a hinterland that would reduce input costs as well as access to a new market for their products, thus expanding revenue potential.
It said these factors would benefit the manufacturing, property, banking and healthcare sectors. More importantly, improving relations would help Singapore lower the constraints that it has on resources like land (should Iskandar develop a strong hinterland) and water.
Stock-wise, CLSA said financial institutions like UOB, which derives 15% of its earnings from Malaysia, might eventually benefit from margin expansion and higher loan volumes if a liberalising financial sector in Malaysia becomes a catalyst for lifting branch restrictions for foreign banks.
In the case of DBS, the research house said it might have an opportunity to expand its regional footprint which is still missing in Malaysia.
“Speculation is rife that Alliance Financial Group may present opportunity here given that Temasek already owns an indirect 14.3% stake in Malaysia’s smallest banking group by assets and equity,” it noted.
“We see CapitaLand and/or its retail mall subsidiary CMA, potential beneficiaries from improving government relations, although the group’s current interest in Malaysia is low given its large size,” the research house said.
It added tbat the group could take on more development options in the Malaysian commercial and retail sectors.
This article appeared in The Edge Financial Daily, May 27, 2010.
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