Capital markets executive summary | Fri 4 Aug 2023

Capital markets executive summary | Fri 4 Aug 2023

Infineon to invest EUR5b in Kulim

Germany-based global semiconductor giant Infineon Technologies AG will build the world’s largest 200mm silicon carbide (SiC) power fabrication plant at a cost of RM24.9b over the next 5 years. The company said the investment will generate EUR7b in revenue by 2030 in support of Infineon’s target of 30% SiC market share. Infineon said the market for SiC had shown accelerating growth in automotive and other industrial applications including solar, energy storage and high-power electric vehicle (EV) charging.

Johor Port Berhad’s MARC-1 and AA- rating affirmed

MARC Ratings affirmed the ratings of the company’s Islamic commercial papers (ICP) programme and Islamic medium term notes (IMTN) programme with a RM1b combined limit. The company operates Johor Port, a gateway port in Pasir Gudang, under a concession agreement expiring on 23 Mar 2055. The ratings reflect the company’s track record and steady throughput volume underlying robust cashflows. The company’s exposure to regional economic and trade activities moderate the rating. Johor Port’s performance has kept within expectations as it enjoyed a full year’s port tariff hike in Oct 2021. Revenue climbed 16% year-on-year to RM675.2m in 2022 due to higher conventional cargo of 19.06m freight weight tonnes (FWT) (2021: 18.38m FWT) and despite marginally lower containerised cargo of 918,598 twenty-foot equivalent units (TEUs) (2021: 937,206 TEUs). Operating profit margin remained at 40%. The company’s outstanding IMTN will rise from RM600m to RM800m to fund structural improvements to its conventional terminal and expansion of its liquid jetty in 2024. Finance-to-equity ratio will increase from 0.54 times in 1Q2023 to 0.68 times. Cash flow from operations (CFO) was RM295.6m in 2022 translating to CFO interest coverage of 9.51 times and CFO debt coverage 0.35 times.

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F&N’s 3Q net profit inches up 2%

Fraser & Neave Holdings Bhd’s net profit rose from RM97.5m to RM99.37m in 3Q ended 30 Jun 2023 driven by higher revenue, which climbed 19% from RM1.12b to RM1.33b. Robust festive sales, improvements in the Malaysian and Thail food and beverage markets, recovery in export markets and additional Cocoaland contribution drove up sales. Correspondingly, earnings per share was up from 26.60 sen to 27.10 sen. Operating profit expanded by 12.6% from RM111.8m to RM125.9m, supported by overall higher prices, better margins, lower cost and Cocoaland’s contribution, although it was partially offset by one-off non-operating items. Excluding the one-off non-operating items, operating profit grew by 59.2%. For 9M2023, the company’s net profit jumped 40% from RM284.32m to RM399.34m, although revenue only climbed 13% from RM3.33b to RM3.76b. For 4Q2023, the company is cautiously optimistic despite volatility in commodity prices and foreign exchange rates and inflationary pressures on its costs and its effect on consumer demand. The counter closed at RM24.92.

Pershing Square bets against 30-year US Treasuries

Billionaire investor William Ackman calls it a hedge on the impact of higher long-term rates on stocks and a good standalone bet. He said that if long-term inflation is 3% instead of 2%, the 30-year Treasury yield could soon rise to 5.5%. The yield is now 4.16%, the highest close in 2023. Pershing executes the hedges by purchasing options rather than shorting bonds outright. Higher defence costs, energy transition and the greater bargaining power of workers suggest higher inflation. The Federal Reserve has been raising interest rates and will keep on doing so to bring down inflation. Separately, Warren Buffett’s Berkshire Hathaway hedges by buying short-term Treasuries. The company bought USD10b (RM45.6b) on Monday and is contemplating a further USD10b of 3-month or 6-month T-bills next Monday.

Temasek invests 3% in EV unit of India’s Mahindra at USD9.8b valuation

The latest round of fundraising saw Mahindra raising USD145m (RM660.8m) for its electric vehicle (EV) subsidiary at a valuation of INR805.8b (RM44.2b). In 2022, the company raised USD250m from British International Investments (BII) at a USD9.1b valuation. The automaker had talking to global investors, including green funds and private equity players, for almost a year to raise USD250m-USD500m to aggressively expand its market share. It competes with larger rival Tata Motors as the government pushes to grow EV sales from less than 2% now to 30% by 2030. Mahindra expects EVs to contribute 20%-30% of its total SUV sales by Mar 2030. At the same time, Tesla is in talks with the government on a low-cost EV factory, which could pose keen competition. In 2021, Tata Motors raised USD1b from TPG’s Rise Climate Fund at a valuation of USD9.1b.