1) S&P: Tenaga’s Failed Bid For Power Assets Reduces The Prospect Of A Weaker Capital Structure; Ratings Unaffected
Tenaga Nasional Bhd’s ratings and outlook (BBB+/Stable/–; axA+/axA-1) are not affected by the company’s failed bid to acquire the power assets of Edra Global Energy Bhd, according to Standard & Poor’s Ratings Services.
“Our base-case expectations for Tenaga did not factor in the bid,” the international rating agency pointed out in a media release.
In Standard & Poor’s view, Edra Global’s assets would have further strengthened Tenaga’s competitive position, particularly in Malaysia. But the rating agency cautioned that the bid valuation and the funding strategy for the acquisition might have led to a weaker capital structure for Tenaga.
“The details of Tenaga’s bid for Edra have not been disclosed,” rationalized Standard & Poor’s. “But the fact that Tenaga’s bid did not emerge as the winning bid suggests to us that the company seeks to balance its funding profile and leverage levels – and hence creditors’ interests – with its expansion plans.”
This, according to the rating agency, underpins its view that satisfactory governance measures are in place within then utility giant. Moreover, Tenaga’s dominant position as an integrated power provider in Malaysia underpins its business risk profile.
“At the same time, we expect the company’s financial risk profile to be mostly unchanged despite an increase in capital expenditure, with the debt-to-EBITDA (earnings before interest, tax, depreciation and amortization) ratio staying below 4.0x through 2016,” projected Standard & Poor’s. “Our expectations also assume revisions in tariffs for any under- or over-recovery of fuel costs.”
On Monday, 1Malaysia Development Bhd (1MDB) announced that it has sealed a deal with China General Nuclear Power Corporation (CGN) for the 100% sale of power assets parked under Edra Global Energy Bhd, its power generation arm.
CGN will pay an equity value of RM9.83 billion in cash and assume all the relevant gross debt and cash based on valuation as of end-March 2015 (the overall price is expected to exceed RM17 billion). The transaction is slated for completion in February 2016.
2) Downward Pressure Looms For Malaysia’s Foreign Reserves As US Interest Rates Hike Beckons
Malaysia’s foreign reserves could again come under some downward pressure in the weeks ahead amid concerns of a possible increase in outflows of short-term capital as the US Federal Reserve prepares to raise the Fed Funds rate in December, according to Affin Hwang Capital Research.
In the minutes of the October 27-28 Federal Open Market Committee (FOMC) meeting, the US Federal Reserve policy makers had highlighted that “it may well become appropriate” to raise the benchmark policy rate in December 2015 but largely agreed that the pace of increases would be gradual, the minutes of the meeting showed.
“Nevertheless, despite uncertainty on the movement of capital flows in the near term, we continue to expect reserves to hover around US$90 billion-US$95 billion by end-2015 (US$115.9 billion as of end-2014) where a possible slight improvement in reserves may be attributed to the country’s sustained current account surplus (from monthly trade surpluses), which should provide some buffers to the reserve level,” projected the research house.
On Friday, Bank Negara Malaysia announced that its international reserves fell marginally by US$100 million (RM700 million) in the first half of the month to US$93.9 billion (RM417.2 billion) as of November 13 this year compared with US$94 billion (RM417.9 billion) as of October 30.
At this level, the reserve coverage of short-term external debt deteriorated slightly to 1.1 times (1.2 times as of end-October). The current level of reserves is sufficient to finance 8.6 months of retained imports, lower than 8.7 months as of end-October but remains well above the three-month international threshold.
“The intervention by Bank Negara to support the ringgit against the US$ most likely remains small and has stabilized since mid-September 2015 as pressure on outflows of short-term capital has waned following the postponement of the widely expected US rate hike in September,” justified Affin Hwang Capital Research.
3)IJM Corp’s Prospects Remain in Abundance
Sitting pretty with a record order book of RM7 billion is putting IJM Corporation Bhd in an enviable position to be more selective in bidding for projects moving into 2016, according to AllianceDBS Research.
The research house observed that the global conglomerate is still eyeing various projects from the 11th Malaysia Plan (11MP), notably specialized works for the Damansara-Shah Alam Elevated Expressway (DASH) and Sungai Besi-Ulu Kelang Elevated Expressway (SUKE), parts of Pan Borneo Highway and the Mass Rapid Transit Line 2 (MRT2).
“Tenders for the remaining packages for West Coast Expressway (WCE) (Packages 1, 2, 6, 7, 10 and 11) will commence from early 2016 onwards,” analyst Tjen San Chong pointed out in a results review of IJM Corp. “It will also try to free capacity by accelerating progress of works in order to capitalize on more flows and the benign raw material environment.”
For its second quarter ended September 30 this year, IJM Corp posted a 40.3% year-on-year (y-o-y) surge in net profit to RM156.38 million (2Q FY3/2015: RM111.49 million; 1Q FY3/2016: RM336.87 million) while its revenue rose a marginal 3.5% y-o-y to RM1.339 billion (2Q FY3/2015: RM1.293 billion; 1Q FY3/2016: RM1.182 billion).
For the cumulative six-month period, IJM Corp’s net profit ballooned 101.43% y-o-y to RM493.25 billion (6M FY3/2015: RM244.87 million) but its revenue inched down 5.4% y-o-y to RM2.521 billion (6M FY3/2015: RM2.665 billion). For the record, there was a one-off gain from the sale of its 74% stake in the company’s Jaipur Mahua Tollway (in India) for RM168.7 million in 1Q FY3/2016. An interim dividend of 3 sen has been declared.
All-in, AllianceDBS Research maintained its HOLD rating on IJM Corp with a target price of RM3.30.
4) Analysts Expect AirAsia To Soar Again Despite Some 3Q FY2015 ‘Financial Glitches’
AirAsia Bhd is expected to bounce back in 4Q FY2015 following a dismal headline net loss of RM406 million following (i) the recognition of associate Indonesia AirAsia’s (IAA) prior year losses, and (ii) forex losses arising from weaker regional currencies and the marked-to-market revaluation of its US dollar-denominated debt.
Moving forward, Kenanga Research expressed optimism on efforts by the management of the budget carrier to turn around both its associates, i.e. IAA and AirAsia Philippines, as the travel sentiment has recovered from the previous air mishaps.
“We expect a strong 4Q for AirAsia due to the holiday season,” wrote analyst Adrian Ng in a results review of AirAsia. “That said, (the) management is still working effortlessly in consolidating its associates which will provide investors more clarity on its accounts in coming future.”
For the record, AirAsia has introduced a detailed segmental breakdown for its associates in Bursa Malaysia, a move the research house strongly believes will help to regain investors’ confidence in the stock.
For the third quarter ended September 30 this year, AirAsia incurred a net loss of RM405.73 million (3Q FY2014: RM5.4 million; 2Q FY2015: RM243.03 million) on the back of a 15% year-on-year (y-o-y) surge in revenue to RM1.516 billion (3Q FY2014: RM1.317 billion; 2Q FY2015: RM1.325 billion).
The net loss was predominantly dragged by forex translation losses as well as the recognition of its share of losses in IAA (RM469.3 million for prior years and RM155.7 million for current year).
For the cumulative nine-month period, AirAsia posted a net loss of RM13.37 million against a gain of RM512.27 in the previous corresponding period while its revenue grew 5.3% y-o-y to RM4.137 billion (9M FY2014: RM3.929 billion).
“Y-o-y, 9M FY201515 came in with a net loss of RM13.4 million due to the write-down of accumulated losses in AirAsia Indonesia and AirAsia India arising from the recent ‘capital injection’ into these two associates,” explained Ng. “However, should we strip-off these one-offs, AirAsia’s core net profit would have been RM443.6 million (+76%).”
5) Maybank’s 3Q FY2015 Net Earnings Soars 18.1% To RM1.9bt
Boosted by higher net operating income and better cost management, Malayan Banking Bhd (Maybank), Southeast Asia’s fourth largest bank by assets, posted an 18.1% year-on-year (y-o-y) jump in its net profit for the third quarter ended September 30 this year to RM1.899 billion (3Q FY2014: RM1.608 billion; 2Q FY2015: RM1.584 billion).
This was achieved on the back of a 27.4% y-o-y surge in revenue to RM11.384 billion (3Q FY2014: RM8.934 billion; 2Q FY2015: RM8.935 billion).
For the cumulative nine-month period, Maybank’s net profit rose 8.3% y-o-y to RM5.184 billion (9M FY2014: RM4.785 billion) while its revenue spiked 13.2% y-o-y to RM29.504 billion (9M FY2014: RM26.050 billion).
“The results were lifted by higher net operating income coupled with rigorous cost management and lower net interest margin (NIM) compression of 3 basis points (bps) during the nine-month period,” Maybank pointed out in a media release. “In addition, the group benefitted from a one-off gain from the sale of its Papua New Guinea (PNG) operations which was completed in September 2015.”
After normalizing for the gain from the PNG sale, net profit for Q3FY15 was up 5.8% to RM1.70 billion while for the nine months, it was 4.2% higher at RM5.0 billion.
The group saw strong growth in income during the nine-month period with net fund based income 13.6% higher at RM10.77 billion on the back of strong loans growth while its net fee-based income rose 22.1% to RM4.85 billion. This resulted in a 16.1% overall rise in net operating income to RM15.62 billion.
For 3Q FY2015, net operating income edged up 26.7% y-o-y to RM5.75 billion aided by an 18.4% rise in net fund based income to RM3.81 billion as well as a 46.8% increase in net fee- based income to RM1.93 billion.
Group loans growth continued to be sustained, expanding at an annualized rate of 17.8% for the nine months. This was boosted by a 34.5% increase from international operations while the banking group’s Malaysian operations recorded a growth of 6.4%, attributed to a 36.4% increase in the SME (small medium enterprise) segment, consumer sector (8.1%) and global banking (2.4%).