Capital markets executive summary | Thu 10 Aug 2023

Capital markets executive summary | Thu 10 Aug 2023

Hup Seng 2Q income up 3-fold

The company’s net profit rose from RM3.04m to RM8.72m in 2Q ended 30 Jun 2023 as revenue climbed 10.5% from RM73.81m to RM81.54m. Earnings per share accordingly surged from 0.38 sen to 1.09 sen. Domestic sales expanded 11% or RM6.3m due to improvements in all channels. Exports gained 9% or RM1.4m primarily from Singapore and Indonesia. For 6M2023, the company’s net profit increased from RM9.81m to RM18.39m and revenue grew from RM153.07m to RM167.93m. The company recommends an interim single-tier dividend of 1 sen. Hup Seng is cautiously optimistic of satisfactory business operations for 2H2023. It will focus on maintaining market share and product competitiveness to increase the popularity of its biscuits. The counter closed at 66 sen.

Indera Persada’s proposed MTN assigned AA1 preliminary rating

RAM Ratings assigned the preliminary rating to the proposed RM68m medium term notes (MTN) programme. Indera Persada receives availability charges from the Public Works Department after completing the Centre of Excellence in Engineering and Technology in Malacca and amid its ongoing maintenance. Although it has strong debt servicing ability, with its projected debt service coverage ratios (DSCR) above 1.50 times in line with the AA1 rating, Indera Persada relies on brought-forward cash. Distributions to shareholders and subordinated bonds must be controlled to preserve future debt coverages. The proceeds will be used to partially repay the RM280m fixed rate serial bonds (2013/2028), pay shareholders and as liquidity support for the MTN. The MTN’s tenor extends up to Aug 2031, the expiry of the concession, although repayment starts only after the serial bonds are repaid in Sep 2028. The MTN and the serial bonds rank pari passu. The company depends on advances from ultimate parent Digistar Corporation Berhad, the guarantor of the MTN, for residual expenses. Monthly maintenance service charge deductions were only 3% in 6M2023 (2022: average 2%), while availability charges are only for debt repayment and not to be used for operations and maintenance costs. Digistar closed at 6.5 sen.

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Mr DIY 2Q net profit up 11.2%

MR D.I.Y Group (M) Berhad’s net profit grew from RM135.19m to RM150.32m in 2Q ended 30 Jun 2023. Its income was partially offset by higher employee cost following a 25% increase in minimum wage, which came into effect on 1 May 2022. Revenue gained 4.8% from RM1.05b to RM1.1b driven by new stores. Earnings per share was up from 1.43 sen to 1.59 sen. Gross profit margin climbed 5.3% to 46.3% with a significant fall in freight costs that normalised to pre-pandemic levels, and the price adjustment exercise implemented in FY2022. The company declared an interim single-tier dividend of 0.8 sen or RM75.5m to be paid on 22 Sep. For 6M2023, the company’s net profit increased from RM235.69m to RM278.1m, and revenue grew from RM1.95b to RM2.15b. It opened 43 new stores in 2Q alone for a total store count of 1,168, up 17.6% from 1H2022, and is on track to exceed the full-year target of 180 new stores. The counter closed at RM1.43.

Bursa urges Islamic banks to be listed

Bursa Malaysia Berhad encourages listed banking companies to look into shariah-compliant instruments to enable the listing of their Islamic banking units on the stock exchange. Banks which are listed on Bursa Malaysia are categorised as conventional even though a portion of their business is shariah-compliant. The challenge with listing banks’ Islamic branches is with the leverage model, with the Islamic banking business leveraging the conventional branch network and management. When an Islamic bank is listed separately, minority shareholders will be present leading to issues of third party transactions. There could possibly be other instruments available which will enable a portion of equities to be traded on the shariah-compliant side as a source of payments. Bursa suggests exploring earmarking and ring-fencing income from Islamic banking operations as a source for dividends. Bursa closed at RM6.81.

Western countries anxious about China-led mBridge

Daily foreign exchange transactions worth USD6.6t (RM30.2t) are in US dollars while half of the USD32t in annual global trade is invoiced in dollars. The mBridge project enables China’s digital yuan to settle large corporate transactions, making it potentially a dollar alternative. The project is being developed since 2017 by China, Thailand, Hong Kong and the United Arab Emirates in a joint effort with Basel, Switzerland-based Bank for International Settlements, and will likely have a basic working product ready by end-2023. mBridge will enable sending money around the world without relying on US banks and is causing concern among some American and European officials. Critics claim that the digital alternative to dollar-based settlement could make it easier to evade sanctions, taxes and money laundering rules, and foster geopolitical tensions by fragmenting global payments into competing systems.