Malaysia’s benchmark index retreated as profit-taking in key heavyweights weighed on sentiment, while overall market activity remained active. Summary FBM KLCI fell 0.83% to 1,684.93 , dragged by losses in banking and selected large-cap names, despite steady trading participation. Market Performance FBM KLCI : 1,684.93 (-0.83%) FBM Mid 70: -0.00% (flat) FBM Small Cap: -0.23% FBM ACE: +0.20% Broad market was mixed , with weakness concentrated in large caps. Market Breadth & Trading Activity Total volume: 3.54 billion shares Total value: RM4.19 billion Gainers: 456 Losers: 678 Unchanged: 550 Market breadth turned negative , reflecting cautious sentiment. Top Movers – KLCI Gainers Axiata (6888.MY) +1.54% Petronas Gas (6033.MY) +1.18% Sunway (5211.MY) +1.15% Losers Hong Leong Bank (5819.MY) -3.29% Maybank (1155.MY) -3.02% CIMB (1023.MY) -2.47% Banking sector weakness was the main ...
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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