KUALA LUMPUR, Feb 11 (Bernama) -- Bursa Malaysia ended higher today as buying on selected blue chips continued, said a brokerage. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) rose 8.85 points or 0.51 per cent to 1,756.39 from Tuesday’s close of 1,747.54. The barometer index opened 3.69 points higher at 1,751.23 before moving as low as 1,745.51 in early trade to as high as 1,757.15 during the mid-afternoon session. Market breadth was positive with gainers leading losers 575 to 474, while 549 counters were unchanged, 1,087 untraded and 11 suspended. Turnover expanded to 2.55 billion units valued at RM3.06 billion from yesterday’s 2.19 billion units valued at RM2.35 billion.
Strengthens net gearing marginally nonetheless
The MYR2.2b Perpetual Sukuk will lower Sime’s proforma net gearing to 49% (from 51%, as at 31 Dec 2015) which fits well with its ongoing deleveraging initiatives. Given the higher cost of Sukuk at 5.65% pa vs existing weighted cost of debt of 3.4% pa, we expect marginal EPS dilutions. With no immediate catalyst in sight (except an El Nino induced CPO price rally), we keep Sime as a HOLD with an unchanged TP of MYR7.98 based on 18x FY17 PER peg.
Raised MYR2.2b Perpetual Sukuk at 5.65% yield
Sime has completed the first fund raising exercise under its Perpetual Subordinated Sukuk programme on 24 Mar 2016. The MYR2.2b Perpetual Non-call 10-year Subordinated Sukuk which offered a yield of 5.65% pa was over 1.8x oversubscribed. Said to be the largest perpetual Sukuk issuance globally by a non-bank, the MYR3b Sukuk programme has been assigned a rating of AA by MARC.
Marginal EPS dilution
Sime plans to use the cash proceeds largely to refinance its debt obligations. According to its annual report, Sime has a total of MYR8.2b debt (inclusive of MYR3.2b in revolving credit and trade facilities) due for repayment in FY16-17. Its weighted average cost of debt was 3.4% p.a in FY6/15. By our estimate, the Sukuk will result in lower share of profits to equity shareholders by MYR37m p.a, which will dilute our FY16/FY17/FY18 EPS forecasts by 0.5%/1.3%/1.2%.
Expect more deleveraging exercises
MARC has accorded a 50% equity credit on the Sukuk issuance. With this, Sime’s proforma net gearing will improve slightly to 49% (from 51%, as at 31 Dec 2015), which is still above its ideal target of 30-40%. In the meantime, Sime is also considering monetising some of its assets in Singapore and Australia before end-FY16 to raise MYR1.5b in cash. We are keeping our EPS forecasts unchanged for now. Sime is a HOLD.
Source: Maybank Research, 25 March 2016
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