1) Kenanga Research Concerns With MRCB’s Net Gearing Level After ‘Triple Strike’

Yesterday, Malaysia Resources Corporation Bhd (MRCB) made three separate Bursa Malaysia filings pertaining to its land banking and construction contract award replenishments in FY2015.

They are:

  • A proposed joint-venture on a 70:30 basis with Cyberview Sdn Bhd to develop 53.4-acre of land in Cyberjaya with its 70% stake amounting to RM269.5 million;
  • A proposed privatization agreement between its 85%-owned subsidiary Rukun Juang Sdn Bhd (RJSB) and the Malaysian Government for the refurbishment of facilities in the National Sports Complex (NSC), Bukit Jalil for a contract sum of RM1.6 billion, in exchange for 92.5 acres or three pieces of leasehold land in Bukit Jalil that has a potential gross development value (GDV) of RM14.6 billion, and
  • The appointment as management contractor to provide services in connection with the development and construction of the 29.82-acre Kwasa Utama commercial development. Spanning a period of about 12 years from 2016 to 2027, the contract has a provisional contract sum of about RM3.1 billion.
  • The good news aside, Kenanga Research has reiterated its concerns on MRCB’s balance sheet given its net gearing which stood at 1.12x as of 2Q FY2015 is already relatively high compared to that of its peers which ranges between 0.30x and 0.40x.

“Based on simple extrapolation, MRCB would have to fork out a whopping RM2.65 billion to fund its landbank replenishment ambitions i.e. Kwasa Damansara (RM700 million), German Embassy Land (RM300 million), Cyberjaya mixed development (RM300 million), Bukit Jalil privatization agreement (RM1.3 billion) which would further inflate its current net gearing position of 1.12x (2Q15) to an alarming net gearing ratio of 2.27x should all of these transaction materialize,” the research house pointed out.

To accommodate its landbank replenishments or to fund its development projects, Kenanga Research opined that a cash call is imminent. Assuming MRCB needs to raise RM2.65 billion to fund all its landbanks, the research house is looking at a potential 2-for-1 rights issuance with an assumed 40% discount to MRCB’s current price of RM1.19 for its rights price.


2) Analysts: RHB Cap To Be Leaner Post Career Transition Scheme Exercise

A major portion of the RHB Bank Group’s Career Transition Scheme (CTS) payout of RM309 million is likely to be paid out in November and December this year with the remaining portion settled in January 2016, suggested MIDF Research.

On a similar note, the research house expects the banking group to begin realizing its RM193 per annum cost savings from FY2016 onwards.

“We have factored this into our (RHB Capital Bhd’s) earnings estimate for FY2016,” wrote analyst Kelvin Ong in a company update. Nevertheless, MIDF Research has not factored the RM309 million one-off payout into its estimate as its net profit forecast is based on core earnings.

Yesterday, the RHB Banking Group announced that it has accepted 1,812 employees for the CTS which is offered to all permanent employees in Malaysia. The figure represents 11.8% of the group’s Malaysian workforce of 15,348 and 13.1% of the Group’s permanent workforce of 13,787 in Malaysia.

At RM309 million, the CTS size is relatively smaller compared to the recent mutual separation scheme (MSS) by CIMB Group (completed on July 2015) with an acceptance of 3,599 employees (1,891 from Malaysia and 1,708 from Indonesia) requiring a payout of RM443.3 million.


3) Tenaga’s FY8/2015 Earnings Heavily Impacted By Forex Losses

Tenaga Nasional Bhd’s 4Q FY8/2015 net profit of RM820.9 million (-39.5% y-o-y; +4.0% q-o-q) was adversely affected by forex losses of RM759.4 recorded during the quarter under review against forex gain of RM154.4 million reported in the previous corresponding period.

PublicInvest Research attributed the negative development to the weaker ringgit which has depreciated by an average of 10.2% year-on-year (y-o-y) against the greenback, thus impacting the foreign currency denominated loans of the utility giant.

As of August 31 this year, Tenaga’s debt denominations consist of yen (14.5%), US dollar (7.1%), ringgit (78.3%) and others (0.1%).

“YTD (year-to-date) forex losses of RM932.3 million (RM819.3 million unrealized forex translation loss and RM113 million realized forex transaction loss) dragged FY8/2015 net profit to RM6.1 billion (-5.4% y-o-y),” wrote analyst Syarifah Hidayatul Akmal in a company update. “Stripping out the forex losses, core net profit of RM7.1 billion would have met our estimates at 103% but exceed consensus forecast at 108%.”

Despite recording higher electricity sales of 8.1% y-o-y, Tenaga’s FY8/2015 revenue was flat at RM43.3 billion (+1.2% y-o-y) due to recognition of the imbalance cost pass-through (ICPT) of RM1.9 billion.

A final dividend of 19 sen was declared for the quarter, bringing full year dividend to 29 sen (49% of company’s free cash flow) which is similar to FY8/2014. “We are slightly disappointed with the quantum as it comes short of our expectations of a 33.2 sen payout,” Syarifah Hidayatul pointed out.


4) BIMB Securities Research: Online Immigration Services A Boon To MyEG

MyEG Services Bhd, a concessionaire for the Malaysian e-government MSC flagship application, can expect its foreign permit renewal segment to be a major revenue growth contributor in the medium-term.

According to BIMB Securities Research’s projection, MyEG should be able to generate RM90 million and RM162 million for FY2016 and FY2017, respectively from this segment. The research house based its estimation on the existence of around 2 million foreign workers in Malaysia with another 2 million-3 million illegal foreign workers who are allowed to be registered in the near future.

As of May 1 this year, the government had stopped processing permits over the counter thereby ensuring 100% penetration for MyEG’s online service.

“MyEG immigration services are full of potential,” BIMB Securities Research pointed out in initiating coverage on the company. “MyEG have shown tremendous growth over the years with a compound annual growth rate (CAGR) of 18% for the past six years.”

Currently, MyEG is engaged in the business of developing and implementation of e-government services and the provision of other related services for the e-government initiative as well as investment holding.


5) Lower Oil Prices Could Put Asia-Pacific’s O&G Companies In A Quandary

Asia-Pacific oil and gas (O&G) companies may be called to take tough decisions if the fall in oil prices is prolonged, according to a report published by the Standard & Poor’s Ratings Services

The report entitled Another Decline In Oil Prices Could Have Asia-Pacific Oil And Gas Companies Over A Barrel observed that the ratings on 40% of O&G companies rated by Standard & Poor’s Ratings in Asia-Pacific and 60% of the stand-alone credit profiles will face downward pressure if oil prices fall 10% below US$50 per barrel without any signs of recovery.

“Overall, the ratings on Chinese state-owned enterprises and Australian companies are the most vulnerable, while the stand-alone credit profiles of the government-owned companies in countries such as Indonesia and South Korea are at the greatest risk,” Standard & Poor’s credit analyst Mehul Sukkawala pointed out.

Nevertheless, the international rating agency opined that O&G companies in Asia-Pacific are still better off than those in other regions where the energy sector has been a significant contributor to higher default rates.

Standard & Poor’s current Brent crude oil price assumptions build in a gradual improvement. It forecasts oil prices at US$55 in 2016, US$65 (2017) and US$70 (2018 and beyond).


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