Capital markets executive summary | Tue 25 Jul 2023

Capital markets executive summary | Tue 25 Jul 2023

Inflation trending down for 4 months

Jun 2023’s 2.4% is the lowest since Apr 2022 due to smaller increases in restaurants and hotels (5.4% vs May 6.7%), food and non-alcoholic beverages (4.7% vs May 5.9%), and furnishings, household equipment and routine household maintenance (2.3% vs May 2.7%). Month-on-month, the consumer price index (CPI) increased marginally 0.1% May-Jun compared to 0.7% Apr-May. Food and non-alcoholic beverage has the largest share of the CPI at 29.5%, while electricity, gas and other fuels account for 23.8%, and transport 14.6%. Other inflation contributors were miscellaneous goods and services 2.6%, health 2%, education 1.9%, housing, water, electricity, gas and other fuels 1.8%, and recreational services and culture 1.6%. UOB expects Bank Negara Malaysia (BNM) to keep the overnight policy rate (OPR) at 3% for the rest of 2023. In the meantime, MIDF says that while core inflation fell from 3.5% in May to 3.1% in Jun, is above the pre-covid level of 1.7%. The bank expects a 0.25% hike in 2023. BNM’s Monetary Policy Committee next meet on 6 and 7 Sep.

Grand Sepadu’s Sukuk Murabahah AA- rating affirmed

MARC Ratings affirmed the company’s RM210m sukuk murabahah rating with a stable outlook. The rating reflects its stable performance with improved gearing and coverage ratios. Underlying the stronger revenue and reduced borrowings is resilient commercial traffic on the New North Klang Straits Bypass. The rating is moderated by uncertainties in scheduled toll increases and the timing of government compensation in lieu of toll hikes. Grand Sepadu runs the 17.5km highway under a concession until Dec 2032. Average daily traffic increased 17.2% year-on-year in 2022 to 86,059 vehicles and 6.4% year-on-year in 1Q2023 to 87,984 vehicles. Total revenue climbed 14% from RM45.2m in 2021 to RM51.3m in 2022. Cash flow coverage on interest rose to 6.2 times (2021: 6.0 times) and coverage on debt inched up to 0.32 times in 2022 (2021: 0.30 times). Finance-to-equity ratio improved to 0.5 times in Jun 2023. The outstanding sukuk is RM60m. MARC’s sensitised scenarios project the pre-distribution finance service cover ratio (FSCR) at above 1.75 times in 2023 and 2024, and below 1.75 times from 2025, primarily due to the distribution of dividends.

EATech cancels share subscription and withdraws regularisation plan

EA Technique (M) Bhd (EATech) went PN17 in Feb 2022 because its RM5.96m shareholders’ equity at 31 Dec 2021 was below 50% of its RM179.76m share capital. It signed the share subscription agreement in Mar 2023 with Eco Offshore Services Sdn Bhd (EOSSB), Tan Sri Abdul Halim Ali and Khiruddin Ibrahim Said. EOSSB is owned by Eco World co-founder Tan Sri Abdul Rashid Abdul Manaf, which would have made him the controlling shareholder with 53%. The oil tankers and port marine services provider then submitted the regularisation plan to Bursa in Apr 2023. After having agreed to mutually terminate the agreement, the company will talk to other investors and submit a new plan afterwards. Bursa granted EATech a 6-month extension to 24 Aug to submit its regularisation plan. EATech said the withdrawal will not affect the High Court-sanctioned scheme of arrangement undertaken in Dec 2022 since it has until 11 July 2024 to pay the scheme creditors. The counter closed at 16 sen.

JAG bags RM150m waste management contract

Jaring Metal Industries Sdn Bhd (JMI), wholly-owned by JAG Berhad, signed the agreement with Infineon Technologies (Malaysia) Sdn Bhd. JMI will manage all types of waste or by-products generated from Infineon’s semiconductor production activities. These include scheduled waste such as electrical and electronic waste, process-related waste and maintenance-related waste, non-scheduled waste and critical scrap. The contract is for a period of 3 years from 1 Aug and valued at RM50m per year. JAG will use borrowings for the initial cash outlays in executing the agreement although the gearing levels will remain acceptable. JAG which started in 1997 is involved in recycling, extraction, production and refinery of ferrous, non-ferrous and precious metals via the recovery and reclamation of industrial and electrical waste, and trading of ferrous and non-ferrous metals. The counter closed at 32.5 sen.

China bubble tea IPOs

Auntea Jenny, ChaBaiDao, GoodMe and XSQ Tea are planning to list in Hong Kong. Meanwhile, Chagee is considering the US. Early this year, Chinese regulators banned or discouraged companies in some industries from listing in the domestic A share market. Bubble tea chains that use the model of burning cash to scale up are also banned. Mixue, the largest chain with 28,000 stores, aborted its USD918m Shenzhen IPO and may appoint GF Securities for a Hong Kong listing. ChaBaiDao, which earns RM22.88b annual revenue from 6,000 stores, appointed China International Capital for a listing in early 2024. GoodMe, which appointed Goldman Sachs and UBS, may raise USD300m in 2024. Chagee, with 1,860 stores, appointed Bank of America and Citi. Auntea Jenny hired Citic Securities and Haitong International. Analysts caution that Chinese food and beverage companies rely on high leverage to expand and then pitch its large market share as an exit strategy to investors. Their financial health may not be sound and low barriers to entry mean very stiff competition.