Capital markets executive summary | Thu 18 May 2023

Capital markets executive summary | Thu 18 May 2023

DXN Holdings net profit plunges 20%

The company – which will be listed on the Main Market tomorrow – suffered a large drop in net profit from RM69.16m in 4Q ended 28 Feb 2022 to RM55.17m in 4Q ended 28 Feb 2023. The company blamed an impairment of property, plant and equipment for facilities in Indonesia, a provision in a customs duty case and a foreign exchange loss. Earnings per share was down from 29 sen to 23 sen. Revenue however increased from RM339.35m to RM404.5m due to stronger sales of fortified food and beverages – especially coffee – in Latin America, Morocco and India. For the full year, revenue climbed from RM1.24b to RM1.6b while net profit rose from RM242.92m to RM275.4m. The company plans to continue expanding into its existing 48 markets and establishing 5 new markets within 2 years. It will also launch a new series of tea variants fortified with natural active ingredients, apart from carbonated beverages in the pipeline. DXN’s production facilities in China, India, the Middle East and Peru will be expanded. The IPO which is oversubscribed 3.2 times is priced at 70 sen.

Pavilion REIT private placement at RM1.22

In Nov 2022, the real estate investment trust (REIT) and Regal Path Sdn Bhd – Malton Berhad’s wholly-owned subsidiary – signed a sale and purchase agreement for Pavilion Bukit Jalil at a price of RM2.2b. Tranche 1 of the private placement exercise will help Pavilion REIT raise RM720m to partially fund the acquisition. The issue price is at a 6.6% discount to the 5-day volume weighted average price (VWAP) up to 16 May of RM1.31. The REIT currently owns Pavilion Kuala Lumpur, Elite Pavilion Mall, Intermark Mall, Da Men Mall and Pavilion Tower. The new acquisition will account for 27% of its enlarged total assets under management. Pavilion REIT closed at RM1.30 while Malton closed at 42 sen.

Southern Steel 3Q net profit plunges 47.12%

The Hong Leong Group company posted net profit of RM1.66m in 3Q ended 31 Mar 2023 compared to RM3.14m the prior year. Earnings per share fell from 0.53 sen to 0.28 sen. Despite revenue rising 10.31% from RM591.12m to RM652.06m due to higher sales volume, lower selling prices squeezed profits. Lower selling prices and higher input costs widened the company’s net loss from RM69.48m in 9MFY2022 to RM123.51m in 9MFY2023, even though revenue was up 4.33% from RM1.73b to RM1.8b. Demand for steel and selling prices is uncertain given the weak China economic recovery and few large infrastructure projects in Malaysia. Separately, the company obtained a recognition order of the 1st award in France and Luxembourg on 30 Jan and 15 Mar relating to the dispute with Italian plant maker Danieli & C Officine Meccaniche. The court bailiff in France seized debts owed by Danieli’s clients while the court bailiff in Luxembourg seized and froze the shares of 2 Danieli wholly-owned subsidiaries. In Jul 2016, the company terminated the agreement with Danieli for the design, manufacture and supply of a thin slab casting unit that produces hot rolled coil signed in Jun 2011 at a price of RM427m. The company is still pursuing the 1st award by the Singaporean Tribunal in 2019, which ordered Danieli to pay the contract price minus the plant’s devaluation, plus RM176.25m in damages. Southern Steel closed at 50 sen.

LTAT crosses 90% shareholding threshold for Boustead

The armed forces fund made a conditional voluntary takeover offer to Boustead on 2 Mar for the remaining 40.58% shares it had not owned for a cash offer of 85.5 sen per share. It has now reached 90.49% or 1.83b acceptance shares paving the way for Boustead’s privatisation. The offer – which remains open until 5pm on 22 May – is conditional upon Bank Negara Malaysia’s approval under s87(1) of the Financial Services Act and s99(1) of the Islamic Financial Services Act for LTAT to acquire up to 100% equity interest in Boustead, which consequentially changes its effective interest in Affin Bank. The fund owns 28.26% directly in Affin Bank after selling off 4.9% to the Sarawak government in Apr. Boustead owns an additional 21% in Affin Bank, which brings the total to 49%, under the 50% threshold requiring the Ministry of Finance approval. Boustead closed at 85.5 sen while Affin Bank closed at RM1.99.

JPMorgan says US recession is coming

The 5th largest bank in the world by total assets says that the Federal Reserve may lower interest rates by 3Q2023 as growth loses momentum. The Federal Reserve’s obsession with high inflation will end as the recession brings prices down. The US banking crisis raised the likelihood of a recession. Seamus Mac Gorain – head of global rates for JPMorgan Asset Management in London – prefers Treasuries as the ultimate hedge against a slowdown and sees 10-year yields falling below 2.5% with a deep economic downturn. His opinion runs contrary to Goldman Sachs and Barclays which warn that the Federal Reserve will not cut interest rates this year. He expects clear evidence of inflation turning a bit later in the summer.