Capital markets executive summary | Fri 24 Nov 2023

Capital markets executive summary | Fri 24 Nov 2023

Fitch forecasts RM3,515 per tonne average palm oil price for 2024

Fitch-owned BMI revised its 2024 average annual forecast for palm oil prices down by 7.5% year-on-year from the 2023 forecast of RM3,800 per tonne for Bursa Malaysia-listed 3rd-month palm oil futures. Year-to-date, palm oil futures traded RM3,797 per tonne on average. Since the start of 4Q2023, the price fluctuated between RM3,201-RM4,352 per tonne. BMI expects a global palm oil production surplus of 1.2m tonnes in 2022/23 and 2023/24. Notwithstanding, the active El Nino event, which will likely continue into 2Q2024, has a 35% chance of turning into a historically strong phenomenon. The drier conditions could reduce yields in 2H2024. Indonesia’s increased biofuel mandate will limit export volumes, whereas consumption growth is forecast in China, India and Southeast Asia. BMI’s forecast for 2027 is RM2,800 per tonne.

Toyota Capital’s guaranteed debt facilities ratings affirmed

RAM Ratings affirmed the AAA(s) and P1(s) ratings of Toyota Capital Malaysia Sdn Bhd’s RM2.5b conventional and Islamic commercial papers and medium term notes programme irrevocably and unconditionally guaranteed by Toyota Motor Finance (Netherlands) BV, wholly owned by Toyota Financial Services Corporation (TFS). There are back-to-back credit support agreements between Toyota Netherlands and TFS and between TFS and Toyota Motor Corporation (TMC) that enhance Toyota Capital’s facilities beyond the standalone credit strength. TMC’s global retail sales gained 1.7% to 10.6m units in FY Mar 2023. Revenue climbed 18.4% to JPY37.2t. Toyota Capital’s gross receivables increased 9.1% in FY Mar 2022, 18.9% in FY Mar 2023 and 3.6% in 1Q FY Dec 2024 due to strong vehicle sales plus the popularity of its Toyota EZ Beli financing product. Adjusted pre-tax profit rose from RM94.9m in FY2022 to RM136.8m in FY2023. Adjusted return on assets (ROA) increased from 1.5% to 1.8%, although it weakened to 1.4% in 1Q FY Mar 2024 because of delinquencies. Gross impaired financing (GIF) ratio narrowed from 1.1% at end-Mar 2022 to 0.9% at end-Jun 2023 as recoveries improved after the covid vehicle repossession moratorium ended. GIF coverage inched up from 108.9% to 109.8%. Adjusted gearing of 11.4 times at end-Jun 2023 is among the highest in RAM’s portfolio of hire purchase and leasing. On 24 Aug, Sime Darby Berhad announced its purchase of Permodalan Nasional Berhad’s 61.18% shareholding in UMW Holdings Berhad, which owns 30% of Toyota Capital. The acquisition is expected to be closed by end-Nov.
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ANIH’s MARCWatch Negative status maintained

MARC Ratings extended the negative watch on the RM1.48b outstanding senior sukuk musharakah rated AA-, originally placed on the rating watch on 25 May after the company breached sukuk covenants by signing a new supplemental concession agreement with the government without sukukholders’ consent. The agreement entails extending the concession period for the Kuala Lumpur-Karak Highway and Phase 1 of the East Coast Expressway from 2032-2069, in return for RM2.3b in lane widening and flood mitigation works. The government’s approval for the change in ANIH’s shareholding structure is expected by end-2023, after which ANIH will only be able to proceed with its refinancing, which is targeted to close by end-3Q2024. In the meantime, ANIH’s cash and cash equivalents were RM342m at end-Sep 2023, sufficient to redeem RM180m sukuk which will mature on 29 Nov 2023.

Thai PM pushes for economic stimulus

Prime Minister Srettha Thavisin insists that the country’s economy is in crisis due to fewer foreign tourists, and the priority is to attract foreign investments and reduce household debt, which require a large economic stimulus. Thailand received 23.85m foreign tourists in 2023 todate, spending THB1t (RM133b) down from 40m foreign tourists in 2019 who spent THB1.91t (RM253b). Southeast Asia’s 2nd largest economy grew 1.9% on average in the last decade and only 1.5% in 3Q2023 due to weak exports and government spending. Srettha is targeting 5% average annual growth in the next 4 years. The THB500b (RM66.5b) digital wallet policy, similar to Malaysia’s cash transfer programmes, entails handing out THB10k (RM1,326) to 50m Thais in 2024 but economists and former central bankers criticise it as breaching financial discipline. Current government officials support his policies, including the Bank of Thailand governor who said that fiscal and monetary policies needed space for economic growth. In Sep, the bank raised the key rate by 0.25% to 2.50%, the highest in a decade, in anticipation of growth and inflation in 2024. The next review will be on 29 Nov.

China considers allowing banks to offer unsecured loans to developers

Part of China’s new measures to help the real estate industry could include allowing banks to grant working capital loans to some developers. Instead of requiring land or assets as collateral, the new facilities will be unsecured and available for day-to-day operations, thereby freeing up capital for debt repayment. Another mechanism would allow a lead lender to coordinate with other creditors on financing plans for distressed builders. Regulators will have to exempt bankers from being liable for bad loans since the risks are high. The new measures are an attempt to cover the USD446b gap in funding to stabilise the industry and complete millions of unfinished homes. At the same time, authorities are finalising a list of 50 developers eligible for financial aid from the government. Banks are being compelled to increase funding for developers despite net interest margins falling to 1.73% at end-Sep, below the industry’s 1.8% profitability threshold. Against the government’s push, outstanding property loans at end-Sep fell year-on-year for the first time, suggesting banks are cautious.