KUALA LUMPUR/SINGAPORE (Feb 22): Singapore's plans to curb the growth of its foreign workforce as announced in its FY2012/13 Budget may benefit UEM Land Holdings Bhd as a proxy for Iskandar Malaysia, said foreign brokerage Credit Suisse.
Starting July 1, the island state will enforce a reduction in its Dependency Ratio Ceilings (DRC) in the manufacturing and services sectors; there could be a possibility of further increases in worker levy beyond July 2013.
"We believe the tightening measures (including the potential increases in worker levy) will increase labour cost for businesses in Singapore. The Singapore government expects the reduction in DRCs to affect some 500 manufacturing companies and 8,500 services companies, mostly SMEs," said Amir Hamzah of Credit Suisse in a report on Tuesday.
It added that Iskandar, with inexpensive land and labour, stands to be the main beneficiary of these measures.
UEM Land has a vast land bank in Iskandar.
The DRCs specify the maximum number of foreign workers that companies can hire. Currently, DRCs for manufacturing companies and services companies are 65% and 50% respectively.
However, after July 1, manufacturing DRC will be reduced to 60% while services DRC will be cut to 45%.
"In Singapore, most SMEs are facing the issue of rising costs, so they're definitely looking at alternatives," Low Beng Tin, chairman of Singapore Manufacturers Federation's Asean business group, was quoted as saying by Singapore's Straits Times early this week.
Many manufacturing SMEs in Singapore are already struggling with rising operating costs and a tight labour market. The measures will make it both difficult and expensive for them to hire workers. Iskandar's cheaper land and labour are likely to be major draws, according to news reports.
Amir said a potential joint venture with a Singaporean industrial land developer would be the best way for UEM Land to capture this opportunity.
"This sort of partnership, we believe, would be a game-changer in attracting Singaporean businesses to Iskandar," he said.
According to the research report, land cost in Iskandar is a fraction of what is in Singapore (RM35 per sq ft compared with more than S$160 (RM400) per sq ft), while labour costs are relatively inexpensive and the area has good infrastructure.
At present, the UEM Land has over 8,000 acres (3,237ha) in Iskandar with 5,000 acres "untouched".
"Should UEM Land be successful in partnering with a Singaporean industrial developer for its land bank in Nusajaya, we believe that would be a catalyst for the stock," Amir said.
Interestingly, Malaysians make up one third or 400,000 of Singapore's foreign workforce, of whom between 150,000 and 200,000 commute daily from Johor.
Amir said this would be a strong conviction for Singaporean businesses which employ Malaysians, to consider moving or expanding their operations to Iskandar.
Credit Suisse has an "outperform" call on UEM Land with a target price of RM3.80 against Tuesday's close of RM2.33.
According to Bloomberg data, the counter is covered by 16 analysts, of which nine recommended a "buy" (including Credit Suisse), five a "hold" and two a "sell", with a consensus target price of RM2.50.
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