Capital markets executive summary | Fri 20 Oct 2023

Capital markets executive summary | Fri 20 Oct 2023

Global Oriental buys majority interest in car park company

The property developer is acquiring 55% of Edisijuta Parking Sdn Bhd (EPSB) for RM27.5m cash from Cahaya Impian Sdn Bhd, which currently holds 70% equity interest. The balance 30% is held by Edisijuta Sdn Bhd. The price is at a price-earnings multiple of 9.9 times based on EPSB’s RM5.05m profit after tax in FY ended Dec 2022. The acquisition will add a recurring revenue stream and diversify the company’s income sources. Property development contributed RM373.79m or 95.2% of Global Oriental’s revenue for FY ended Mar 2023. The acquisition will be paid for with internally-generated funds and will be completed in 4Q2023. The counter closed at 23 sen.

Petroleum Sarawak’s AAA and P1 rating affirmed

RAM Ratings affirmed the corporate credit ratings of state-owned Petroleum Sarawak Berhad (Petros) and the AAA rating of wholly-owned subsidiary Petroleum Sarawak Exploration & Production Sdn Bhd’s RM15b multi-currency Islamic medium term notes (2021/2051). The ratings reflect Sarawak’s state implicit strength because income from petroleum sales tax and royalties is the major contributor to Sarawak’s revenue, and therefore, the company should receive regulatory support and financial assistance from the state. In Mar, Petros obtained the state’s 1st carbon capture utilisation storage (CCUS) licence and was appointed as its resource manager. Revenue jumped from RM1.4b in FY2021 to RM1.8b in FY2022. Pre-tax profit surged from RM0.5b to RM0.8b. After Petros acquired interests in 3 production sharing contracts starting 1 Jan 2023, revenue doubled from RM0.9b in 1H2022 to RM2.1b in 1H2023, and pre-tax profit from RM0.4b to RM0.9b. Sukuk issuances totalling RM3b in Nov 2022 and Feb 2023 pushed up the gearing ratio from 1.47 times at end-Jun 2022 to 2.56 times at end-Jun 2023. Annualised debt to operating profit before depreciation, interest and tax (OPBDIT) weakened from 1.16 times at end-Jun 2022 to 1.64 times at end-Jun 2023. Funds from operations debt coverage (FFODC) fell from 0.71 times to 0.53 times.
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KAF Investment Bank’s financial institution ratings affirmed

MARC Ratings affirmed the financial institution ratings of AA- and MARC-1. The bank adopts a low-risk business model with a focus on trading and investing in money market and fixed-income securities using funds from interbank borrowings and short-term deposits from corporates. Revenue leapt 59.6% from RM71.1m in 9M ended Feb 2022 to RM211.7m in 9M2023. Pre-tax profit doubled from RM71.3m to RM148.3m. Return on assets rose to 4.27% and return on equity to 11.04%. Common Equity Tier 1 ratio improved from 99.99% to 137.3%, Tier 1 capital ratio from 100% to 137.4% and total capital ratio from 100.9% to 138.5%. The stronger capitalisation levels were due to shrinking holdings of fixed income securities, lowering risk-weighted assets from RM1b to RM824m. 90.4% of KAF’s investment portfolio consists of government, government-guaranteed and AAA-rated securities. In Apr 2023, subsidiary KAF Seagroatt & Campbell Berhad, signed a conditional share purchase agreement for CIMB Investment Bank to acquire 100% of KAF Equities Sdn Bhd for RM147.9m cash. The sale will be completed in 4Q2023. The sale will have minimal impact on KAF as brokerage income only represents 13% of total revenue. KAF will invest RM120m over 5 years in its 80% owned digital bank set to commence operations in 1Q2024.

PNB puts 20% of Maybank Asset Management to Maybank

Permodalan Nasional Bhd (PNB) exercised its put option on 30 Nov 2022 to sell 20% or 8.34m shares of Maybank Asset Management Group Bhd (MAMG) to Malayan Banking Bhd (Maybank). The other 80% is owned by Maybank. After the put option was exercised, Maybank and PNB jointly appointed PricewaterhouseCoopers (PwC) Capital to determine the fair value of the shares in accordance with the terms of the shareholders’ agreement. PwC Capital arrived at a value of RM70.39m via the market approach, a peer comparison based on the implied price to assets-under-management multiple of selected transactions. The price will be paid in cash with internally-generated funds. The acquisition will be completed in 4Q2023. This is a related party transaction because Amanah Saham Bumiputera, a PNB-managed fund, is Maybank’s major shareholder with a 31.03% shareholding. Maybank closed at RM8.96.

Blackstone profit down 12%

The asset manager overseeing USD1.01t posted 3Q profits of USD1.21b or 94 cents a share, similar to its 2Q profit, which was the lowest in 2 years. Amidst the Federal Reserve’s interest rate hikes, buyers are reluctant to strike deals when financing costs are high and private equity firms are keeping assets instead of selling in an uncertain market. Fee-related income declined 5% and funds deployed for new deals plunged 60%. The vague trajectory of inflation and rates make for an uncertain environment which depresses transaction volume. It received USD16.2b net fundraising flows in 3Q, down 50% year-on-year as investors opt for other assets to generate returns given the higher prevailing rates, instead of locking up money in illiquid assets offered by Blackstone. Still, the firm has USD200b dry powder to tap opportunities arising from market dislocations.