Capital markets executive summary | Wed 5 Jul 2023

Capital markets executive summary | Wed 5 Jul 2023

Farm Fresh investors worried about raw milk supply

Following Australia-based Bega Group’s announcement that milk production volumes have fallen by 700m litres or 9% in the last 2 years and dairy ingredient prices have risen, the company’s share price closed at a record low for the 3rd straight day. Although investors are concerned that the warning signals intense competition for raw milk, Farm Fresh explained that 3rd party farmers only supply 14% of its 100m litres of total milk ingredients. Instead, the company sources 70% of raw milk from its own farms in Malaysia and Australia. Farm Fresh ended its listing day at RM1.72 on 22 Mar 2022, up from its initial public offering (IPO) price of RM1.35. The counter closed lower at RM1.14 due to heavy selling. It was the 2nd most active with 77.38m shares changing hands.

G Capital signs 4 power purchase agreements with TNB

In Dec 2022, wholly-owned subsidiary Northern Star Hydropower Sdn Bhd was granted the feed-in approval holder status by the Sustainable Energy Development Authority (SEDA). It signed the 21-year renewable energy power purchase agreements (REPPA) for a total of 26MW capacity. The high-head small hydropower plants in Pahang are located in Hulu Dong (12.5MW) and Batu Talam (13.5MW). The projects are projected to generate RM688m in revenue for the company. TNB will purchase electricity from Northern Star Hydropower at a feed-in-tariff (FiT) rate of 22.98 sen per kilowatt-hour. The projects are scheduled to begin operations on 6 Dec 2027. On 5 Apr, the company announced it will raise RM113m to finance its 20MW hydropower projects in Perak via a renounceable rights issue of 1.41b 5-year 8% redeemable convertible unsecured loan stocks at 8 sen. The stock closed at 49 sen.

High Court sets aside corporate voluntary arrangement for Empire Remix project

Section 397 of the Companies Act 2016 introduced the mechanism to rescue businesses with viable projects which are in financial distress. It is an agreement between the company and its creditors for a compromise on the company’s debts and its repayment. It only applies to private companies without any secured debt. In the Empire Remix case, the High Court judge used the Federal Court’s decision on the Semenyih Jaya case that the powers of the court cannot be diluted by statutory laws. The project stopped with less than 30% completed when the developer, Mammoth Empire, ran into financial difficulties. Altogether, 2,500 buyers had paid RM500m in end financing for their unfinished properties. Despite the landowner taking over the project in 2019, the project continued to be abandoned. The corporate voluntary arrangement (CVA) was subsequently approved by the creditors but 467 purchasers filed a lawsuit challenging it. The High Court ruled that the CVA was not workable.

Sunway’s sukuk and conventional programmes MARC-1 and AA- ratings affirmed

MARC Ratings affirmed the ratings of Sunway Berhad’s RM2b commercial papers and medium term notes programme and Sunway Treasury Sukuk Sdn Bhd’s RM10b Islamic commercial papers and Islamic medium term notes programme. Sunway’s market position and operating track record in property development, property investment and construction are the primary rating drivers. Its growing presence in the domestic healthcare market and the profitability of this segment are key considerations. The company returned to pre-covid levels in 1Q2023 with revenue climbing 14% year-on-year to RM1.3b, although pre-tax profit was only up slightly to RM192m because of higher operating and financing costs. The company’s RM8.1b gross development value property projects had a 79% take up rate at end-2022. Its RM4.3b unbilled sales give earnings visibility to 2026. Sunway’s construction order book of RM5.3b at end-2022 offers earnings visibility to 2025. Borrowings were RM9.3b in 1Q2023 for a gross debt-to-equity ratio of 0.66 times.

US to limit China’s access to cloud computing

Chinese companies’ access to US cloud computing services will be curtailed by the US government. Cloud service providers including Amazon and Microsoft will need to obtain government approval before they offer services that use advanced artificial intelligence chips to Chinese customers. This expands on the ban on chip exports to China imposed since Oct 2022. The measure, to be implemented by the Department of Commerce, comes soon after China announced a ban on exports of gallium and germanium used in semiconductors.