January 6, 2020
MY Credit Outlook 2020 – Chartbook & Views
Late Cycle, Not End of Cycle
FIXED INCOME FIXED Malaysia
Winson Phoon|+65 6812 8807|[email protected] Se Tho Mun Yi|+603 2074 7606|[email protected]
THIS REPORT HAS BEEN PREPARED BY MAYBANK KIM ENG RESEARCH SEE PAGE 61-66 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS Contents
Supply Review: 2019 3 Bumitama Agri Ltd 33 DRB-HICOM Bhd 35 Supply Outlook: 2020 8 Eco World Capital Assets Bhd 37 Eco World International Bhd 39 Demand Profile 10 First Resources Ltd 41 Fortune Premiere Sdn Bhd 43 GG Bonds 15 Gamuda Bhd 45 Genting Malaysia Bhd 47 Credit Condition & Spreads 17 IJM Corporation Bhd 49 Kuala Lumpur Kepong Bhd 51 Sector Outlook Mah Sing Group Bhd 53 Banking Sector 25 Press Metal Aluminium Hldgs Bhd 55 Construction Sector 26 UEM Sunrise Bhd 57 Plantation Sector 27 Power Sector 28 Appendix Property Sector 29 List of Outstanding GG bonds 60 Solar Sector 30 PDS maturity in 2019: Toll Road Sector 31 Corporates 61 FI (Bank) 64 Credit Views: Selected Issuers FI (Non-bank FI & Others) 65
Strictly Private & Confidential Page 1 MYR Credit: Supply Review, Supply Outlook and Demand Profile
Strictly Private & Confidential Page 2 Supply Review 2019: Gross PDS supply was little changed at MYR105b (2018: MYR104b) Gross PDS Issuance by Rating: Lower high-grade supply Gross/Net PDS Issuance, 2015–2020F was offset by an increase in unrated bond issuances
*2019: Urusharta Jamaah’s MYR27.55b issuance related to the restructuring of non-performing assets under LTH is excluded Sources: Bloomberg, BPAM, CEIC, Maybank KE
Page 3 Supply Review 2019: By Sector
Infrastructure bond supply plunged, but higher issuance from Property & REIT sector
Sources: Bloomberg, BPAM, CEIC, Maybank KE
Page 4 Infrastructure Sector: Issuances down due to downsizing of major projects and no large debt-funded IPP on high energy reserve margins Infra Bond: Credit enhancements through GG remain Infra Bond : Rail sector the main driver as power and toll- crucial, accounting for 63% of total infra bond supply road bond supply plunged
Sources: Bloomberg, BPAM, CEIC, Maybank KE
Page 5 Financial Institutions: Steady supply of bank capital debts partly driven by refinancing
FI Debt: Supply by Type of FI Bank Debt: Supply by Type of Bank Capital
DFI = Development Financial Institution
Sources: Bloomberg, BPAM, CEIC, Maybank KE
Page 6 Property & REIT: Total supply jumped to MYR16.4b in 2019 (2018: MYR10.8b) on robust issuances through unrated route
Property & REIT: Top 10 Issuers in 2019 Property & REIT: Issuance by Rating (MYR’b)
Issuer Name Rating MYR’b
PNB Merdeka Ventures Sdn Berhad No rating 1.72
Sunway Treasury Sukuk Sdn Berhad No rating 1.32
Ara Bintang Berhad No rating 1.11
SunREIT Unrated Bond Berhad No rating 1.07
IJM Land Berhad A2 0.85
Sunway Berhad No rating 0.75
Damansara Uptown Retail Centre Sdn Berhad No rating 0.69
Tradewinds Hotels & Resorts Sdn Berhad No rating 0.60
Midciti Sukuk Berhad AAA 0.50
Notable Vision Sdn Berhad Multiple 0.48
Sources: Bloomberg, BPAM, CEIC, Maybank KE
Page 7 Supply Outlook 2020: Gross PDS supply forecast MYR110b
Forecast: Gross PDS supply of MYR110b in 2020 (2019: MYR105b)
Key rationales: Infrastructure bond supply is underpinned by rail, power and water segments albeit down from the peak. Refinancing for some bond maturities or those become callable in 2020. Robust supply in unrated segment, funding need from property & REIT companies.
1) Infrastructure sector: Forecast MYR25-27b gross supply. This is expected to come primarily from rail/public transport and power sector. The MRT2 and Pan Borneo Highway (Sarawak) are under construction, while LRT3 and ECRL have been given the green light to proceed albeit at lower costs. It was reported in November that Penang state government is looking to issue bonds to finance the Bayan Lepas LRT project which may begin in 2020. On issuing vehicle, MRTs and Pan Borneo Highway are funded via Danainfra and LRT via Prasarana. There could be two new financing SPVs, for 1) ECRL and 2) Penang LRT. On power sector, we forecast MYR8.0-8.5b of supply to fund pipeline IPP and solar power plants under the large scale solar (LSS3). See details on report Malaysia Infrastructure Bond.
2) Banks/FI sector: Forecast MYR25-30b gross supply. Domestic banks’ capital ratios are strong. Given tepid loan growth in the banking system, there seems to be no urgency to raise bank capitals. As of Nov 2019, the CET1, Tier-1 and Total Capital ratios were 13.7% (Dec 2018: 13.9%), 14.2% (Dec 2018: 14.6%) and 17.6% (Dec 2018: 18.1%) respectively. While the banking system is well capitalised, there could be funding requirement from individual banks and we think the general appetite is to maintain strong capital buffers against the risk of higher non-performing loans in a late cycle. Refinancing need is moderate, given bond maturity/those become callable amounting to MYR16.35b for banks and MYR5.3b for non-bank FI. Strictly Private & Confidential Page 8 Supply Outlook 2020 (continued)
3) Mortgage/loans financing vehicles: Forecast MYR12-15b gross supply for LPPSA, Cagamas and PTPTN. We expect continued funding need for PTPTN, given its socially and to a certain extent politically important role in providing student loans for higher education (majority B40 group). Default rate was high at 51%. For the 51% defaulters, 32% are paying inconsistently; for the remaining 49% responsible borrowers, 26% has completed repayment while 23% are paying consistently, according to a TheEdge report on 25 Nov 2019. The government targets to improve recoveries and limit PTPTN loan access to B40. This may gradually reduce its funding need over the medium term. On another loan vehicle LPPSA, i.e. the Public Sector Home Financing Board, it is left with MYR2.55b debt capacity under its MYR25b GG programme, although the limit may be revised. The MYR2.7b SPK bond maturity on 19 Aug 2020 may be refinanced under LPPSA. For Cagamas, it has been a regular issuer and is expected to continue tapping Ringgit bonds.
4) Corporates and others: Forecast MYR35-40b gross supply. From a top-down perspective, domestic economy is expected to remain resilient therefore the overall environment should remain conducive to fund raising activities. The relaxation of rules and ongoing efforts by the regulator to broaden the credit spectrum and investor base in the PDS market should support the growth of PDS market, in our view. Property & REIT companies are expected to continue tapping the bond market as alternative funding source to the banking system.
Strictly Private & Confidential Page 9 PDS Demand Profile: Healthy asset growth and reinvestment demand by major investor groups underpin the demand for PDS PDS Market: Predominantly local-driven with low foreign Assets/AUM Growth: Major Domestic Investor (YoY) participation
Sources: BNM, CEIC, EPF, SC
Page 10 Demand Profile: Pension Fund - Underpinned by still robust growth in net contributions
EPF: Rising Net Contributions EPF: Total Investment Assets and Growth
Sources: EPF, Maybank KE
Page 11 Demand Profile: PNB - Continue to raise its allocation to fixed income PNB: Shifting low-yielding cash holdings into higher- PNB: AUM surpassed MYR300b on healthy pace of growth yielding fixed income investments, by MYR3-4b p.a.
Sources: PNB, Maybank KE’s compilations
Page 12 Demand Profile: Life Insurance Funds – Moderate growth
Life Insurance Funds: Total Investment and Growth Life Insurers: Investment Composition
Sources: BNM, CEIC, Maybank KE
Page 13 Demand Profile: Fund Management Fund Management: Higher allocation to foreign assets, but Fund Management: Domestic AUM and Fixed Income Share driven by equities, not fixed income
Sources: SC, Maybank KE
Page 14 GG Bond: Lower but still reasonably sizeable issuance given the funding need of ongoing public infrastructure projects
GG Bond: Top 10 Issuer by Outstanding Amount (MYR’b) GG Bond: Yearly Issuance and Its Share of PDS Supply
Sources: Bloomberg, BPAM, Maybank KE
Page 15 GG Bond: Moderate maturities in 2020 GG Bond Maturities: Moderate in 2020, only gets heavy in 2022 but mostly well spread out at the back end GG Bond and Contingent Liability, 3Q2019
*As of 31 Dec 2019
Sources: Bloomberg, BPAM, Maybank KE
Page 16 Credit Condition and Spreads
Strictly Private & Confidential Page 17 Credit Condition in Rated Universe: No default for second consecutive year, slightly positive credit trend with more upgrade/outlook increase in 4Q19
Rating Change: Upgrade vs Downgrade Rating Outlook Revision: Increase vs. Decrease
Sources: RAM, MARC, Maybank KE
Page 18 Credit Spreads: GG, AAA, AA2 and AA3
Credit Spread (bp): GG Credit Spread (bp): AAA
Credit Spread (bp): AA2 Credit Spread (bp): AA3
*Credit spreads at end of period Sources: BPAM, Maybank KE
Page 19 Credit Condition: Macroeconomic environment remain supportive, but external uncertainties linger
Malaysia: Key Macroeconomic Indicators and Prices
2016 2017 2018 2019E 2020F Real GDP growth (YoY) 4.2% 5.9% 4.7% 4.5% 4.4% Current account balance (MYR'b/% of GDP) 29.0/2.4% 40.3/3.0% 30.6/2.1% 52.1/3.5% 51.2/3.3% Inflation rate (CPI) 2.1% 3.9% 1.0% 0.7% 2.0% Overnight policy rate 3.00% 3.00% 3.25% 3.00% 2.75% USDMYR (end-period) 4.49 4.10 4.13 4.15 4.08 Brent crude price (USD, average) 44 54 71 63 60 Crude palm oil (MYR/MT, average) 2,652 2,791 2,235 2,100 2,300 Unemployment rate 3.5% 3.4% 3.3% 3.4% 3.4%
• Resilient macro environment underpin stable domestic credit conditions. GDP growth is expected to stay flattish in 2020 and inflation to remain benign, albeit higher. Malaysia’s external position is still healthy and saw an increase in current account surplus, foreign reserves up at USD103.3b in mid-Dec 2019 from USD101.4b at end-2018 and manageable external debt load. Overall leverage in the economy held steady with non-financial credit-to-GDP ratio at 190% in Jun 2019 (Dec 2018: 188%) and better than the broad EM average of 194%.
• Risk: External uncertainties remain. Notwithstanding the prospects of a partial US-China trade deal, risks to global growth still lingers given the broadened US-China trade conflict, potentially more protectionist trade policies globally and structural slowdown in China. These would have a knock-on effect on the local economy and in turn affect domestic credit conditions.
Sources: Maybank KE Macro/Economics Research
Page 20 Leverage in the Economy: Credit/GDP ratios in regional economies are still near cyclical highs after a steep increase post-GFC Regional Comparison: Cyclical buildup of leverage (%) in Malaysia: Credit/GDP ratio has stabilized after macro- regional economies since GFC prudential measures and tepid loan growth in recent years
Sources: BIS, Bloomberg
Page 21 Economic Cycle View: Late cycle, but not end of cycle. US Fed’s mid-cycle easing may prolong the US expansion cycle. Period First Start of Months to Months in Rate Path By How Much Inversion Recession Recession Recession After of 2y10y Curve Inversion Early 1980s Aug-78 Feb-80 18 6 Tightening Continued with tightening in the next 14 months by 725bps in total at cyclical peak. 1981-1982 Sep-80 Aug-81 11 16 Tightening Continued with tightening in the next 8 months by 800bps in total at cyclical peak. Early 1990s Dec-88 Aug-90 20 8 Tightening Continued with tightening in the next 2 months by a total of 100bps at cyclical peak, but 4 months later it began cutting rate by 175bps until the recession. Early 2000s Jun-98 Apr-01 35 8 Easing > Started cutting rate 3 months after curve Tightening inversion mid-cycle easing by 75bps. Then paused for 6 months, but tightened again by 175bps until the cyclical peak. Late 2000s Dec-05 Jan-08 25 18 Tightening Continued with tightening in the next 6 months after curve inversion by 100bps in total until the cyclical peak. Current Aug-19 Unknown Unknown Unknown Easing Started cutting rate in July before curve Cycle inversion in August, with a total of 75bps mid- cycle easing.
Source: Bloomberg, Fed Reserve, Maybank KE
Strictly Private & Confidential Page 22 Revisiting 1998-2000: Fed’s mid-cycle rate adjustment fueled a late-cycle surge in risk assets, contributing to the then longest US growth cycle
Source: Bloomberg, Maybank KE
Strictly Private & Confidential Page 23 Sector Credit Outlook
Strictly Private & Confidential Page 24 Banking Sector: Stable Outlook, but monitoring signs of pressure on asset quality
GIL ratio trended higher in 2019 Capital ratios in the banking industry
1.65% % Dec-2016 Dec-2017 Dec-2018 Nov-2019 1.61% 1.62% 1.61% 20.0 1.60% 1.60% 17.818.117.6 1.60% 17.0 1.57% 18.0 16.0 15.0 14.6 14.614.2 13.614.013.913.7 1.55% 1.53% 1.53% 1.53% 14.0 12.0 1.50% 1.48% 1.48% 10.0 8.0 1.45% 6.0 4.0 1.40% 2.0 0.0 CET1 Core Capital Risk-Weighted Capital Stable credit profiles; credit costs to remain elevated
• Banks to maintain stable credit profiles, supported by flattish loan growth of 4.1% in 2020 (2019E: 4.2%). A possible 25bps rate cut in 2020 would put tightening pressure on NIM. Banks are expected to continue to manage operating efficiencies and rationalize costs.
• Impaired loans increased in 2019. Industry GIL ratio climbed from 1.48% at the start of the year to a high of 1.62% before coming off slightly to 1.60% in November. Asset quality could remain under pressure given a slightly moderated economic growth of 4.4% expected in 2020 (2019E: 4.5%). Segments that warrant close monitoring would be the commercial property and working capital.
• Nonetheless, the banking system continued to have strong capitalization with CET1, core capital and risk-weighted capital ratios at 13.7%, 14.2% and 17.6% respectively. Sources: BPAM, MKE Equity & FI Research
Page 25 Construction Sector: Stable Outlook
Key infrastructure projects Outstanding Orderbooks (end-Sep 2019) Rail Value (MYR b) Costs cut to MYR44b, local portion could ECRL 44.0 be up to MYR10b; Subcontracting awards may start in 2H20. KVMRT 2 (52km) 30.5 Overall progress at 63.5% in Nov 2019 KVLRT 3 (36km) 16.6 Overall progress at 23% in Nov 2019 Kuching LRT (Phase 1) 5.0 Cost estimated to be below MYR5b Johor-SG RTS Link 4.0 Reviewing costs - deferred to 30 Apr 2020 Highways PDP role transferred to Sabah state's Pan Borneo Sabah 12.8 Public Works Department Pan Borneo Sarawak (Phase 2) 5.5 From Miri to Lawas (bypass Brunei) Sarawak Coastal Road; Second Link Tenders ongoing; Tenders to start in early 11.0 Road 2020 Others PDP expected to be appointed in early- Penang Transp. Master Plan 32.0 2020 Project revived. IWH-CREC could be Bandar Malaysia 140.0 reinstated as master developer. Healthier order replenishment on revival of large infrastructure projects
• Stable outlook, with better prospects in 2020. After the slowdown in 2019 due to project reviews/deferments/ cancellation, the revival of some large infrastructure/development projects and new ones would bring healthy order replenishment in 2020. These include the ECRL, Bandar Malaysia and the Penang Transport Master Plan (PTMP).
• The government increased its gross development expenditure in Budget 2020 to MYR56b, up 4.3% YoY, and is encouraging infrastructure developments in East Malaysia. Ongoing infrastructure projects such as KVMRT2, KVLRT3 and Pan Borneo Highway to support earnings generation of construction players.
• The PTMP is expected to conclude the PDP agreement in early 2020, with GAM seen as a front-runner for the role. The government may continue with the KL-SG High Speed Rail, which is expected to be part of Bandar Malaysia development and could be a potential wildcard.
Sources: MKE Equity Research
Page 26 Plantation Sector: Stable Outlook Palm oil price discount to US soybean oil narrowed (10 CPO prices Dec 2019)
3,100 MYR/t USD/t (RHS) 750 2,900 700 2,700 650 600 2,500 550 2,300 500 2,100 450 1,900 400 1,700 350 1,500 300
CPO price recovery to sustain into early 2020 but reduced competitive edge and export taxes put a lid on the rally
• The seasonally weak production should keep CPO prices elevated in 1Q20. On the other hand, narrower CPO discount to US soybean oil (from historical average of USD150/t to USD7/t as at 10 Dec 2019), CPO premium over diesel and any hikes in export/import levies could put a lid on the price rally.
• Stable outlook. Plantation players are expected to see some improvement in their credit profile on the back of stronger CPO prices, with our plantation analyst forecasting an average of MYR2,300/t for 2020 (YTD2019: 2,093/t). Capex to stay moderate as stricter sustainability compliance curb planting activities.
• Malaysia to impose export taxes on CPO for Jan 2020 and is considering a windfall tax, though KLK is partly shielded by its diversified downstream operations. Indonesia will also impose export levies in January of up to USD50/t. We still like FRL and BAL for their medium term production growth prospects and cost efficiencies.
Sources: Bloomberg, MPOB, MKE Equity Research
Page 27 Power Sector: Stable Outlook
DSCRs by rating (x) D/E ratio by rating (x)
Avg Min Covenant RAM benchmark Latest Covenant 6.00 6.00 AAA AA1 AA2 AA3 AAA AA1 AA2 AA3 5.01 5.00 5.00
4.00 4.00 4.00 3.36 3.45 3.41 3.00 3.00 3.07 3.00 2.71 3.00 2.44 2.53 2.09 1.94 1.93 2.00 1.83 1.87 1.78 1.771.77 1.83 2.00 1.62 2.00 1.49 2.13 1.48 1.49 1.22 1.21 1.83 1.80 1.78 1.65 1.52 1.57 1.02 1.00 1.50 1.47 1.51 1.50 1.50 1.50 0.89 1.31 1.00 0.58 0.71 1.00 0.33
0.76 0.06 Not meaningul 0.00 0.00 Not available
Liberalization to be a gradual process over a long period • Malaysia Electricity Supply Industry (MESI) 2.0 aims to liberalize the sector from power generation to distribution. This will likely be a gradual process over a long time period and hence, we do not see major risk in the near term. Singapore took 17 years to fully liberalize its retail electricity market.
• IPP project fundamentals to remain solid on the back of steady operating conditions and timely payments from offtakers. Key credit risks for IPPs are: 1) timing of payments, 2) large unexpected cash outflows, such as dividends or expenses, and 3) operational issues. Adequate power reserve margin in the region of 32-33% across Malaysia, according to RAM, reduces the need for new power plants, especially from non-renewable energy sources such as coal.
• Kapar could face pressure on its metrics, which looks stretched for a AA1, as it has persistently experienced operational issues due to the plant’s old age and design. Other plants that faced operational issues include TBEI and SPR Energy, though the latter saw a rebound in performance after rectifying its issues. Sources: MARC, RAM, Maybank KE 1) DSCR with cash balances 2) Based on RAM’s sensitized and MARC’s base cases Page 28 3) Zero value means no covenant Property Sector: Stable Outlook, but unsold residential stocks remain high amid weak sentiment
Residential property sales in value and units Unsold residential stocks: 3Q19
Units MYR m Units Value (RHS) Unit ('000) YoY (RHS) 80,000 25,000 160 60%
70,000 140 50% 20,000 40% 60,000 120 30% 50,000 100 15,000 20% 40,000 80 10% 10,000 60 30,000 0% 20,000 40 -10% 5,000 10,000 20 -20%
0 0 0 -30%
Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19
Mar-14 Mar-18 Mar-12 Mar-13 Mar-15 Mar-16 Mar-17 Mar-19
Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-18
Jul-15
Apr-14 Apr-19
Jan-13 Jan-18
Oct-16
Jun-13 Jun-18
Sep-14 Sep-19
Mar-12 Mar-17
Feb-15
Aug-12 Aug-17
Dec-15
Nov-13 Nov-18 May-16 No end in sight for high unsold stocks and land/asset sales to potentially feature • Demand-supply rebalancing may take another couple of years. Unsold residential stocks remained high at 121,658 units at end-Sep 2019, albeit down from the record high of 140,808 units in March. Without a strong pick up in property demand, it will be difficult to clear all the overhang units. Meanwhile, developers continue to launch new units focused in the affordable segment.
• Headwinds remain. Demand to be lukewarm given no extension of the National Home Ownership Campaign, a neutral Budget 2020 for the property sector, flattish domestic economic growth (2020E: +4.4%; 2019E: +4.5%), policy overhangs and possible political uncertainty.
• We expect property developers’ credit profiles to muddle along as most have unbilled sales sufficient to provide revenue visibility for the next year or so. Developers may potentially look for land/asset sales for liquidity or paring down of debt. Prefer developers with geographically diversified projects or solid financial profile such as IOIPG, UEMS and Mah Sing. Sources: CEIC, NAPIC Page 29 Solar Power Sector: Stable Outlook
DSCRs by rating (x) Large scale solar (LSS) scheme overview
Avg Min Covenant RAM benchmark 8.00 AA2 AA3 A1 6.89 7.00
6.00
5.00
4.00 3.30 3.00 3.13 2.14 1.83 1.97 2.00 1.54 1.69 1.62 1.00 1.37 1.50 1.50
0.00 EDRAS SINAR UITM TADAU CYPARK QSP Solar power plants generation outperform estimates
• Solar power plant projects under the LSS3 are expected to be awarded in 1Q2020. Commercial operations date targeted in 2021. Concessionaires may come to the bond market to raise funds, possibly adding MYR1b of bond supply, we estimate.
• Credit profiles of Solar IPPs to be stable. Solar power plants are less operationally complex relative to thermal power plants. Credit risks of operational solar plants are 1) energy yield performance 2) higher-than-expected operating costs and 3) quality of solar PV modules. For solar plants under construction, IPPs with healthy liquidity position, strong sponsor and experienced contractor can better withstand construction risks. Among the names we look at only Cypark Ref’s plant is under construction.
• Of the 5 operational solar power plants, actual electricity generated by Sinar Kamiri, Tadau Energy and Edra Solar outperformed estimates, while UiTM Solar Power underperformed its P90 estimates in the first 6 months.
Sources: MARC, RAM, MKE DCM, MKE FI Research 1) DSCR with cash balances Page 30 2) Based on RAM’s sensitized and MARC’s base cases Toll Road Sector: Stable Outlook but with a cautious view, clouded by regulatory uncertainties and negative bias rating migration history
DSCR by rating (x) D/E ratio vs min DSCR (x)
Avg Min Covenant RAM treshold Min DSCR 8.00 AAA AA2 AA3 0.00 DE 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Healthy project fundamentals, but remain clouded by regulatory uncertainties and negative bias rating migration history • Project fundamentals remain healthy, assuming government compensations for toll hike reductions or deferrals will continue as per concession agreements. Lower toll rates moderated by resilient traffic performance. Key credit risks are: 1) timing of compensation, 2) large unexpected cash outflows, and 3) rising competition from public transportation. • Regulatory uncertainties remain an overhang. In Budget 2020, the average toll charges of all PLUS highways and the Second Penang Bridge will be reduced by at least 18%. We view this as credit neutral on expectations of government compensation. The government’s proposed takeover and toll system restructuring of Gamuda’s highways have yet to conclude, and it is also mulling a potential takeover of PLUS highways. • Caution is warranted for toll roads that are facing construction delays. Most projects typically can withstand 6 months delay; beyond that, project cash flows and debt metrics may not hold, heightening downgrade risk or may require restructuring. Names facing construction delays are MEX II and DUKE3. Rating migration history was negative bias (see report “Malaysia Infrastructure Bond”, 15 Nov 2019). Sources: MARC, RAM, Maybank KE 1) DSCR with cash balances, post-distribution Page 31 2) Based on RAM’s sensitized and MARC’s base cases Credit Views on Selected Issuers Strictly Private & Confidential Page 32 Bumitama Agri Ltd (BAL): AA3/Plantation Credit/Bond View Key Credit Assessment • We change our outlook on BAL to stable (from positive) as • EBITDA plunged 41% YoY to IDR1.1t in 9M19 due to weak the current credit profile is unlikely to achieve a higher CPO prices (13%), lower crop output (-4%) and some rating without substantial deleveraging. The higher logistics issues. The earnings weakness drove BAL to leverage increases exposure to CPO price volatilities. increase borrowings to fund operations as well as capex BAL’s medium term growth prospects remain intact and dividends which cumulatively amount to IDR1.2- underpinned by young tree estates. 1.3t on annualized basis. FFODC declined to 0.16x and debt/EBITDA rose to 4.57x (2018: 0.37x; 2.18x). • Upside potential: 1) Maintain current scale and operating performance that is on par with higher rated peers, 2) • Although both ratios crossed RAM’s downside threshold, Debt/EBITDA <3x, FFODC >0.3x. we think the weak metrics is transitory and unlikely to • Downside risk: 1) Debt/EBITDA >4x, 2) FFODC <0.2x. trigger a downgrade. BAL’s credit profile should see some improvement in 4Q19 given the strong recovery in Outstanding Last Spread over CPO prices, expected stronger output and lower Security (MYR m) Yield MGS (bps) fertilizing costs. BALSP 4.1 07/22/24 300 3.78 60 BALSP 4.2 07/22/26 400 3.90 60 • With an average tree age of c.11 years, FFB production is expected to stay robust in the medium term and estimated to grow by 8% in 2020. BAL produced 2.3m MT of FFB nucleus in 2018 vs 1.4m MT in 2014. • BAL has published 3 sustainability reports, the latest being 2018, which are reviewed by an external party. It has room for improvement with 6/14 mills and 31% of planted area being RSPO certified and 70% of external purchased FFB traceable. BAL has a zero-fire policy and is continuously strengthening its fire risk mitigation strategies. Page 33 Bumitama Agri Ltd (BAL): AA3/Plantation BAL: Selected indicators BAL: FFB production FYE 31 Dec (IDR b) 2016 2017 2018 9M19 FFB (MT) YoY Profit & Loss Highlights 100% 92% 1,000,000 900,000 Revenue 6,630 8,131 8,381 5,399 80% Operating income 1,581 1,940 1,848 663 800,000 53% Operating margin 23.9% 23.9% 22.1% 12.3% 60% 700,000 43% 45% PBT 1,551 1,894 1,705 706 37% 40% 30% 31% 600,000 25% 24% 25% 26% PBT margin 23.4% 23.3% 20.3% 13.1% 19% 20% 22% 20% 500,000 14% Net profit 1,188 1,424 1,295 514 20% 9% 7% 30% 7% 25% 3% 400,000 Net profit margin 17.9% 17.5% 15.5% 9.5% -0% -1% -3% 0% -7% 11% -11% 300,000 -1% -22% 200,000 Balance Sheet Highlights -20% -27% Current assets 2,295 1,906 2,410 2,435 100,000 Current liabilities 1,915 1,278 6,427 2,017 -40% 0 Current ratio 1.20x 1.49x 0.37x 1.21x Cash & cash equivalents 517 217 299 362 Total equity 7,522 8,472 9,000 9,055 LT debt 3,860 4,410 935 5,948 LT gearing 0.51x 0.52x 0.10x 0.66x BAL: Financial metrics and triggers ST debt 1,008 339 4,289 850 ST gearing 0.13x 0.04x 0.48x 0.09x IDR b Total debt Debt/EBITDA Total debt 4,868 4,749 5,224 6,798 FFODC Downside Triggers 8,000 5.0x Gross gearing 0.65x 0.56x 0.58x 0.75x 4.57x 4.5x Net gearing 0.58x 0.53x 0.55x 0.71x 7,000 4.0x Debt/EBITDA* 2.53x 1.96x 2.18x 4.57x 6,000 Cash/ST debt 0.51x 0.64x 0.07x 0.43x 3.5x 5,000 2.53x 3.0x 4,000 2.18x 2.5x Cash Flow Highlights 1.96x FFO 1,626 2,102 1,947 820 3,000 2.0x FFODC* 0.33x 0.44x 0.37x 0.16x 1.5x 2,000 OCF 1,372 1,883 1,517 798 1.0x 0.33x 0.44x 0.37x Interest paid 180 188 217 249 1,000 0.16x 0.5x OCF interest cover* 7.6x 10.0x 7.0x 4.5x 0 0.0x OCFDC* 0.28x 0.40x 0.29x 0.16x 2016 2017 2018 9M19 Sources: Bloomberg, Company, Maybank KE * Annualized interim figures Page 34 DRB-HICOM Bhd (DRB): A+/Conglomerate Credit/Bond View Key Credit Assessment • Positive outlook. We expect DRB to sustain its positive • DRB returned to the black in 3QFY3/19 on improvement earnings performance and the paring down of some debt in automotive and sustained the positive momentum could yield an operating profit interest cover of 3.0x. DRB into 1HFY3/20 with pretax profit of MYR278m. had set up a new MYR3.5b sukuk programme to refinance Automotive posted higher revenue of MYR4.7b (+40% perps with call dates in 2020, alleviating refinancing risk YoY) and pretax profit of MYR234m (vs losses of and extending its debt maturity profile. MYR209m in 1HFY3/19) driven by stronger car sales, especially from Proton. This more than offset the • Upside potential: 1) OPBITDA interest cover >3.0x, gross weaker services segment, weighed down by Pos gearing <0.7x. Malaysia’s weak results. Property contribution was stable. • Downside risk: 1) Deterioration in financial performance, 2) Large debt-funded acquisitions. • With its 4 marques, DRB has a 33% market share of Outstanding Last Spread over total industry volume (TIV) in 9M19, having sold Security (MYR m) Yield MGS (bps) 147,291 units out of the industry’s 442,991 units. DRBHMK 7 1/2 PERP call 2/27/20 100 N/A N/A Proton sales grew 8% YoY to 69,920 units, which DRBHMK 7 1/2 PERP call 4/15/20 100 N/A N/A translates to a market share of 19%. For 2020, Proton is DRBHMK 7.48 PERP call 5/15/20 50 N/A N/A aiming to sell 100,000 units and may introduce the X50, DRBHMK 7.45 PERP call 8/12/20 75 N/A N/A a smaller version of the X70. DRBHMK 8 PERP call 12/30/21 300 N/A N/A DRBHMK 4.15 12/12/22 250 4.15 109 • Gross gearing was 0.63x on the back of MYR6.4b total DRBHMK 4.55 12/12/24 300 4.55 135 debt at end-Sep 2019, but its MYR2b cash pile translate DRBHMK 4.85 12/11/26 250 4.76 147 to a manageable net gearing of 0.43x. Expect some DRBHMK 5.1 12/12/29 700 5.10 178 improvement in debt metrics as DRB plans to use proceeds from the Alam Flora Sdn Bhd disposal (completed on 5 Dec 2019) to pare down debt. Page 35 DRB-HICOM Bhd (DRB): A+/Conglomerate DRB: Selected indicators DRB: MYR bonds maturity profile FYE 31 Mar (MYR m) 2017 2018 2019 1H20 MYR m Profit & Loss Highlights 800 700 Revenue 12,058 12,251 12,477 7,032 700 Operating income -131 366 452 405 Operating margin -1.1% 3.0% 3.6% 5.8% 600 PBT -228 284 282 278 500 PBT margin -1.9% 2.3% 2.3% 3.9% 400 Net profit -265 192 51 195 325 300 300 Net profit margin -2.2% 1.6% 0.4% 2.8% 300 250 250 200 Balance Sheet Highlights 100 Current assets^ 8,923 8,649 9,377 9,098 0 0 0 0 0 Current liabilities^ 8,929 7,873 8,927 8,499 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Current ratio 1.00x 1.10x 1.05x 1.07x Cash & cash equivalents^ 2,429 2,525 2,510 2,062 Total equity 10,170 10,098 10,016 10,096 LT debt^ 4,105 3,465 3,548 3,442 DRB: Gearing LT gearing 0.40x 0.34x 0.35x 0.34x ST debt^ 2,193 2,324 2,771 2,965 MYR m ST debt^ LT debt^ ST gearing 0.22x 0.23x 0.28x 0.29x 4,500 Gross gearing Net gearing 0.70x Total debt^ 6,298 5,790 6,319 6,407 4,000 0.63x Gross gearing 0.62x 0.57x 0.63x 0.63x 3,442 0.60x 3,500 Net gearing 0.38x 0.32x 0.38x 0.43x 2,965 0.50x 3,000 Cash/ST debt 1.11x 1.09x 0.91x 0.70x 0.43x 2,500 0.40x Cash Flow Highlights 2,000 0.30x Interest paid 337 245 247 165 1,500 0.20x Operating profit/Interest n.m. 1.5x 1.8x 2.5x 1,000 500 0.10x 0 0.00x FY3/17 FY3/18 FY3/19 1HFY3/20 Sources: Bloomberg, Company, Maybank KE ^ Adjusted to exclude estimated banking related figures Page 36 Eco World Capital Assets Bhd (ECW): NR/Property Credit Bond View Key Credit Assessment • Stable outlook on ECW’s improved earnings performance • Net profit surged to MYR203m in FY10/19 vs MYR93m in and expectations that it will manage leverage and FY10/18 driven by significantly higher contribution refinancing risk appropriately. Sales execution will be from ECWI due to lumpy earnings recognition, and crucial amid headwinds in the sector. We continue to achieved contracted sales of MYR2.7b or 45% of its assess ECW at an A1 rating, weighed down by its high MYR6b target for FY10/19-20. Unbilled sales amounted leverage and weak liquidity position. to MYR3.8b at end-Oct 2019 which provides revenue visibility for just roughly 1 year. • Upside potential: 1) Enlarged property development business with stronger profitability, 2) Capital structure • Leverage remains elevated. While gross/net gearing enhancement or pare down debt, 3) If the potential edged lower to 0.83x/0.70x (FY10/18: 0.89x/0.77x), merger with UEM Sunrise materializes. total debt remained high at MYR3.8b as of end-Oct • Downside risk: 1) Large debt-funded investment/land 2019. We don’t expect ECW to deleverage materially in banking, 2) Weaker property market outlook. the near term given working capital, capex needs and plans to start dividend distribution to shareholders. Short term debt was MYR1.98b vs only MYR0.6b cash. Outstanding Last Spread over Security ECW may look for refinancing opportunities and its (MYR m) Yield MGS (bps) MYR3.96b land bank provide some financial flexibility. ECOWMK 6 1/2 08/12/22 250 5.51 248 ECOWMK 6.1 08/13/24 250 6.16 297 • ECW is in the midst of acquiring 200 acres of land in Iskandar Puteri, Johor for MYR305m, staggered over 7 years to ease pressure on its cash flow. Completed unsold inventory rose to MYR597m at end-Oct 2019 (FY10/18: MYR169m). New launches and unsold inventory would continue to support earnings. Risk is weak property sales given still challenging market conditions in 2020. Page 37 Eco World Capital Assets Bhd (ECW): NR/Property ECW: Selected indicators ECW: MYR bonds maturity profile FYE 31 Oct (MYR m) 2016 2017 2018 2019 MYR m Profit & Loss Highlights 300 Revenue 2,546 2,937 1,985 2,462 250 250 Operating income 237 384 205 226 250 Operating margin 9.3% 13.1% 10.3% 9.2% 200 PBT 193 283 132 266 PBT margin 7.6% 9.6% 6.6% 10.8% 150 Net profit 129 210 93 203 Net profit margin 5.1% 7.1% 4.7% 8.3% 100 Balance Sheet Highlights 50 Current assets 3,899 3,965 4,578 4,240 0 0 0 0 Current liabilities 2,786 3,242 4,394 4,315 2020 2021 2022 2023 2024 Current ratio 1.40x 1.22x 1.04x 0.98x Cash & cash equivalents 573 434 510 601 Total equity 3,787 4,264 4,328 4,538 LT debt 2,045 2,203 1,926 1,804 ECW: Gearing LT gearing 0.54x 0.52x 0.45x 0.40x ST debt 817 1,277 1,905 1,976 MYR m ST debt LT debt Gross gearing Net gearing ST gearing 0.22x 0.30x 0.44x 0.44x 2,500 1.00x Total debt 2,862 3,480 3,831 3,779 0.83x 0.90x Gross gearing 0.76x 0.82x 0.89x 0.83x 2,000 0.80x Net gearing 0.60x 0.71x 0.77x 0.70x 1,804 0.70x Cash/ST debt 0.70x 0.34x 0.27x 0.30x 1,976 0.70x 1,500 0.60x 0.50x Cash Flow Highlights FFO 147 190 104 175 1,000 0.40x FFODC* 0.05x 0.05x 0.03x 0.05x 0.30x OCF 346 437 382 716 500 0.20x Interest paid 110 133 211 216 0.10x OCF interest cover 3.1x 3.3x 1.8x 3.3x 0 0.00x OCFDC* 0.12x 0.13x 0.10x 0.19x FY10/16 FY10/17 FY10/18 FY10/19 Sources: Bloomberg, Company, Maybank KE * Annualized interim figures Page 38 Eco World International Bhd (ECWI): NR/Property Credit Bond View Key Credit Assessment • Stable outlook. We expect ECWI to sustain positive • ECWI posted a net profit of MYR190m for FY10/19 vs a operating profit which will help moderate rise in debt restated net loss of MYR10m in FY10/18 on the back of level. We also maintain our assessment of A2 standalone a surge in share of joint ventures (JV) results to rating for ECWI. MYR296.4m. ECWI is mainly involved in property development through JVs. • Upside potential: 1) Meaningful increase in operating results and cash flows, 2) Recovery of the UK property • Sales was tepid with just MYR1.1b in FY10/19 absent market. enbloc BTR sales and amid Brexit uncertainty. At 18% of • Downside risk: 1) High capex spending without the MYR6b sales target for FY10/19-20, it suggests corresponding improvement in earnings, 2) A slump in its some enbloc sales may be in the pipeline. ECWI remains property markets. focused in the BTR segment and is looking to do enbloc sales for its Woking and Barking Tesco sites. Near term, unbilled sales of MYR5b as at end-Oct 2019 provide revenue visibility. Outstanding Last Spread over Security (MYR m) Yield MGS (bps) • Total debt and gross/net gearing climbed to MYR1.5b ECWIMK 6.4 10/25/21 350 5.75 280 and 0.54x/0.38x respectively (FY10/18: MYR0.8b; ECWIMK 6.65 04/27/23 180 5.63 255 0.34x/0.16x). We expect the debt level to edge higher ECWIMK 6.4 05/24/23 270 6.01 292 as ECWI is still actively looking for new landbank in London. It would require improving operating profit to keep leverage contained. • While the UK general election reduced political risk, ECWI may still face operating challenges in 2020 as the the Brexit deal is being negotiated and the UK property outlook remains challenging. Page 39 Eco World International Bhd (ECWI): NR/Property ECWI: Selected indicators ECWI: MYR bonds maturity profile FYE 31 Oct (MYR m) 2016 2017 2018 2019 MYR m Profit & Loss Highlights 500 450 Revenue 1 0 1 0 450 Operating income -222 -53 -71 -47 400 350 Operating margin n.m. n.m. n.m. n.m. 350 PBT -219 -87 -15 190 300 PBT margin n.m. n.m. n.m. n.m. 250 Net profit -217 -87 -10 190 200 Net profit margin n.m. n.m. n.m. n.m. 150 100 Balance Sheet Highlights 50 Current assets 211 1,365 944 1,500 0 0 0 Current liabilities 1,111 114 290 310 2020 2021 2022 2023 Current ratio 0.19x 11.97x 3.25x 4.84x Cash & cash equivalents 19 992 437 440 Total equity 113 2,548 2,492 2,695 LT debt 0 49 605 1,357 ECWI: Gearing LT gearing 0.00x 0.02x 0.24x 0.50x ST debt 924 80 231 107 MYR m ST debt LT debt Gross gearing Net gearing ST gearing 8.20x 0.03x 0.09x 0.04x 1,600 9.0x Total debt 924 129 836 1,464 1,357 1,400 8.0x Gross gearing 8.20x 0.05x 0.34x 0.54x 7.0x 1,200 Net gearing 8.03x Net Cash 0.16x 0.38x 6.0x Cash/ST debt 0.02x 12.42x 1.89x 4.11x 1,000 5.0x 800 4.0x Cash Flow Highlights 3.0x FFO -35 -65 -85 -61 600 0.54x 2.0x FFODC* n.m. n.m. n.m. n.m. 400 107 OCF -39 -91 -186 -590 1.0x 200 0.38x Interest paid 51 36 26 65 0.0x OCF interest cover n.m. n.m. n.m. n.m. 0 -1.0x OCFDC* n.m. n.m. n.m. n.m. FY10/16 FY10/17 FY10/18 FY10/19 Sources: Bloomberg, Company, Maybank KE * Annualized interim figures Page 40 First Resources Ltd (FRL): AA2/Plantation Credit/Bond View Key Credit Assessment • Stable outlook. FRL’s credit profile remained well- • 9M19 EBITDA fell 32% YoY to USD143m weighed down by positioned for the rating and its young tree profile will weak CPO prices (-29%) and a slight decrease in CPO continue to drive strong crop production and yield. sales volume (-3%). Although this resulted in weaker FFODC of 0.28x, we expect to see some improvement • Upside potential: 1) Increased mature planted area that given the strong rebound in CPO prices in 4Q19. leads to sustained productivity improvements and an enhanced downstream segment, 2) Gearing <0.3x, FFODC • Biological tree stress after 2 years of strong production >0.5x. reduced FFB output to 2,202k MT in 9M19 (-4% YoY) and • Downside risk: 1) Prolonged weak CPO price, 2) Gearing FRL is expecting a flattish output growth for 2019. FRL’s >0.6x, FFODC <0.3x. young trees averaging c.11 years will continue to drive strong FFB production and yield. Outstanding Last Spread over • Solid financial profile with healthy margins, albeit Security (MYR m) Yield MGS (bps) having lowered to 20%-levels from over 30% previously. FRSP 4.35 06/05/20 600 3.47 70 Gross gearing edged up to 0.42x (2018: 0.39x) but there FRSP 4.85 10/27/21 400 3.59 63 is still plenty of room from the 0.6x downside threshold. • Decent ESG disclosures with 5 sustainability reports published in the past decade. FRL achieved 98% of processing traceable FFB in 2018, nearing its 100% target by 2020. It also plans to achieve 100% RSPO/ISPO certifications by 2024/2020. It has a no burning policy for plantings and actively communicates to villages on fire prevention and management. Page 41 First Resources Ltd (FRL): AA2/Plantation FRL: Selected indicators FRL: FFB production FYE 31 Dec (USD m) 2016 2017 2018 9M19 '000 MT Total FFB YoY Profit & Loss Highlights Revenue 575 647 633 431 1,200 50% 1,013 Operating income 195 229 191 91 983 40% 1,000 886 863 832 869 Operating margin 33.8% 35.4% 30.1% 21.2% 773 794 790 30% PBT 183 209 181 80 800 706 724 731 614 PBT margin 31.8% 32.3% 28.6% 18.6% 20% 600 491 534 Net profit 132 145 128 60 10% Net profit margin 22.9% 22.4% 20.2% 13.9% 400 0% 200 Balance Sheet Highlights -10% Current assets 435 432 330 338 0 -20% Current liabilities 401 108 115 376 Current ratio 1.08x 4.01x 2.87x 0.90x Cash & cash equivalents 108 234 55 77 Total equity 926 1,022 986 1,039 LT debt 224 475 351 183 LT gearing 0.24x 0.47x 0.36x 0.18x FRL: Gearing ST debt 224 21 30 256 ST gearing 0.24x 0.02x 0.03x 0.25x USD m ST debt LT debt Total debt 448 496 381 438 500 Total gearing Net gearing 0.60x Total gearing 0.48x 0.49x 0.39x 0.42x 450 Net gearing 0.37x 0.26x 0.33x 0.35x 0.50x Debt/EBITDA* 1.78x 1.70x 1.48x 2.29x 400 350 0.42x Cash/ST debt 0.48x 11.17x 1.84x 0.30x 0.40x 300 0.35x 256 Cash Flow Highlights 250 0.30x FFO 200 232 193 93 200 183 0.20x FFODC* 0.45x 0.47x 0.51x 0.28x 150 OCF 212 253 129 97 100 0.10x Interest paid 27 25 19 10 50 OCF interest cover* 7.8x 10.3x 7.0x 9.7x 0 0.00x OCFDC* 0.47x 0.51x 0.34x 0.30x 2016 2017 2018 9M19 Sources: Bloomberg, Company, Maybank KE * Annualized interim figures Page 42 Fortune Premiere Sdn Bhd (IOIPG): AA/Property Credit Bond View Key Credit Assessment • Stable outlook on the back of IOIPG’s strong profitability, • 1QFY6/20 results showed revenue -2% YoY to MYR540m new launches, healthy liquidity, favorable debt maturity on soft property sales and pretax profit +26% to profile and financial flexibility with MYR13.7b of MYR256m driven by contribution from China and investment properties. Its credit metrics are more in line Malaysia and higher JV earnings from sales of South with a AA3/AA- rating, in our view, one level below Beach Residences in Singapore. New sales amounted to MARC’s AA2 rating. MYR389m. Property investment earnings continued a gradual uptrend attributed to better occupancy and • Upside potential: n/a rental rates after a re-fit of IOI Mall Puchong. • Downside risk: 1) Weaker property outlook in its key markets, 2) Substantial rise in leverage. • Debt repayment brought gross gearing down to 0.59x at end-Sep 2019 (FY6/18: 0.65x). This does not include the newest SGD2b euro MTN programme set up in Nov 2019. Recall that management last year guided for a possible rise in gearing in the coming years, peaking at 0.7-0.8x. The Central Boulevard and IOI City Mall Phase Outstanding Last Spread over Security 2, slated for completion in 2022, still require capex. (MYR m) Yield MGS (bps) Healthy liquidity with MYR1.5b cash vs MYR0.8b short IOIPG 4.65 12/21/22 100 3.65 60 IOIPG 4.8 03/13/23 250 3.64 57 term debt, and the bulk of total debt are long term. IOIPG 4.85 09/07/23 300 3.73 62 IOIPG 4.85 11/02/23 230 3.70 58 • New launches in Xiamen, China and Malaysia, clearing IOIPG 3.9 12/17/24 160 3.88 67 unsold inventory and MYR750m unbilled sales to anchor IOIPG 5.05 09/05/25 900 3.88 63 earnings in the near term. IOIPG expects FY6/20 new IOIPG 5.05 10/31/25 100 3.89 64 IOIPG 3.985 09/11/26 200 3.96 67 sales similar to previous year’s MYR1.9b. In Malaysia, it will focus on the affordable housing market and though margins could be lower, IOIPG’s sizeable, low-cost land bank has enabled pretax profit margins of 34-50% in the last 5 years. Page 43 Fortune Premiere Sdn Bhd (IOIPG): AA/Property IOIPG: Selected indicators IOIPG: MYR bonds maturity profile FYE 30 Jun (MYR m) 2017 2018 2019 1Q20 MYR m Profit & Loss Highlights 1,200 Revenue 4,185 2,669 2,198 540 1000 Operating income 1,290 964 944 243 1,000 Operating margin 30.8% 36.1% 42.9% 45.0% 780 800 PBT 1,437 1,016 1,086 256 PBT margin 34.3% 38.1% 49.4% 47.3% 600 Net profit 968 778 660 137 Net profit margin 23.1% 29.2% 30.1% 25.3% 400 160 200 Balance Sheet Highlights 200 100 Current assets 9,719 8,873 7,827 7,580 0 0 0 Current liabilities 9,283 3,791 2,701 2,701 2020 2021 2022 2023 2024 2025 2026 Current ratio 1.05x 2.34x 2.90x 2.81x Cash & cash equivalents 2,376 2,392 1,577 1,492 Total equity 18,489 18,476 18,994 18,858 LT debt 4,791 9,574 10,150 10,299 IOIPG: Gearing LT gearing 0.26x 0.52x 0.53x 0.55x ST debt 7,704 2,379 1,176 795 MYR m ST debt LT debt ST gearing 0.42x 0.13x 0.06x 0.04x 12,000 Gross gearing Net gearing 0.80x 10,299 Total debt 12,495 11,953 11,326 11,094 0.70x Gross gearing 0.68x 0.65x 0.60x 0.59x 10,000 0.60x Net gearing 0.55x 0.52x 0.51x 0.51x 0.59x 8,000 Cash/ST debt 0.31x 1.01x 1.34x 1.88x 0.51x 0.50x 6,000 0.40x Cash Flow Highlights 0.30x FFO 1,198 476 427 164 4,000 FFODC* 0.10x 0.04x 0.04x 0.06x 0.20x OCF 35 1,531 757 224 2,000 795 0.10x Interest paid 241 309 395 119 OCF interest cover* 0.1x 5.0x 1.9x 1.9x 0 0.00x OCFDC* 0.00x 0.13x 0.07x 0.02x FY6/17 FY6/18 FY6/19 1QFY6/20 Sources: Bloomberg, Company, Maybank KE * Annualized interim figures Page 44 Gamuda Bhd (GAM): AA3/Construction Credit/Bond View Key Credit Assessment • Stable outlook. We expect GAM to keep credit metrics in • GAM reported higher revenue of MYR1.1b but pretax line with its rating on the back of a sizeable construction profit was lower by 4% YoY at MYR218m for 1QFY7/20. order book and property launches, and that it will manage Construction and concession earnings were weaker due refinancing risks accordingly. Proceeds from highway to softer traffic at KESAS, reduced KVMRT2 value and disposals can help pare down debt and we think the the change to turnkey contractor model. This was more subsequent reduced business diversification has been or less offset by higher billings from property projects. taken into account by RAM. • Upside potential: 1) Manage construction margin pressures • Little rating headroom. Total debt rose back up in and execution risks, continuously replenish order book 1QFY7/20 to MYR5.6b, translating to gross gearing of and lower debt level; 2) FFODC >0.25x and gearing <0.5x. 0.65x. FFODC likely lowered from the 0.16x in FY7/19 • Downside risk: 1) Execution risk, weaker construction (calculated by RAM) given the weak results. While margins, higher project risks, weak property sales or high MYR2.3b cash leads to a manageable 0.38x net gearing, debt load; 2) FFODC <0.15x and gearing >0.7x. it cannot fully cover MYR2.7b short term debt. We Outstanding Last Spread over expect GAM to use its access to domestic banks/capital Security (MYR m) Yield MGS (bps) markets to manage refinancing risks accordingly. GAMMK 01/16/20 100 3.38 75 GAMMK 01/30/20 100 3.42 78 • The pending highway disposals would give GAM GAMMK 02/14/20 100 3.42 78 proceeds of MYR2.4b which can be partly used to repay GAMMK 03/10/20 100 3.38 75 some borrowings, but on the other hand, it would GAMMK 4.55 03/13/20 300 3.39 76 reduce GAM’s business diversification. GAMMK 4.78 10/27/20 200 3.56 71 GAMMK 4.62 04/23/21 300 3.54 64 GAMMK 4.825 11/23/22 500 3.76 71 • Construction order book of MYR8.6b at end-Oct 2019, GAMMK 4.785 03/16/23 400 3.80 72 property sales (target MYR4b for FY7/20) and relatively GAMMK 4.688 08/28/23 100 3.85 74 steady concession income to continue to support GAMMK 4.79 11/27/23 100 3.88 75 earnings. Upside prospect could come from the PDP GAMMK 4.117 11/18/26 200 4.11 82 GAMMK 4.263 11/16/29 300 4.25 94 role in the Penang Transport Master Plan. Page 45 Gamuda Bhd (GAM): AA3/Construction GAM: Selected indicators GAM: PBT by segment FYE 31 Jul (MYR m) 2017 2018 2019 1Q20 MYR m 1QFY7/19 1QFY7/20 Profit & Loss Highlights 100 92 94 Revenue 3,211 4,217 4,565 1,096 90 82 77 Operating income 682 706 689 170 80 Operating margin 21.2% 16.7% 15.1% 15.5% 70 59 PBT 826 747 909 218 60 PBT margin 25.7% 17.7% 19.9% 19.9% 50 Net profit 656 581 758 186 40 40 Net profit margin 20.4% 13.8% 16.6% 16.9% 30 20 Balance Sheet Highlights 10 Current assets 6,436 7,359 8,087 8,621 0 Current liabilities 2,567 3,757 5,099 5,491 Construction Property Dev Concession Current ratio 2.51x 1.96x 1.59x 1.57x Cash & cash equivalents 1,042 1,623 1,849 2,316 Total equity 7,845 7,980 8,471 8,702 LT debt 4,615 4,250 2,958 2,965 GAM: Gearing LT gearing 0.59x 0.53x 0.35x 0.34x ST debt 629 1,487 2,186 2,677 ST debt LT debt MYR m ST gearing 0.08x 0.19x 0.26x 0.31x Gross gearing Net gearing 5,000 0.80x Total debt 5,243 5,737 5,144 5,641 Gross gearing 0.67x 0.72x 0.61x 0.65x 4,500 0.70x 4,000 0.65x Net gearing 0.54x 0.52x 0.39x 0.38x 0.60x Cash/ST debt 1.66x 1.09x 0.85x 0.87x 3,500 2,965 3,000 2,677 0.50x Cash Flow Highlights 2,500 0.38x 0.40x FFO 776 712 618 129 2,000 0.30x FFODC* 0.15x 0.12x 0.12x 0.09x 1,500 0.20x OCF -352 963 762 254 1,000 Interest paid 104 238 276 35 500 0.10x CFO interest cover n.m. 4.1x 2.8x 7.2x 0 0.00x OCFDC* n.m. 0.17x 0.15x 0.18x FY7/17 FY7/18 FY7/19 1QFY7/20 Sources: Bloomberg, Company, Maybank KE * Annualized interim figures Page 46 Genting Malaysia Bhd (GENM): AAA/Gaming Credit Bond View Key Credit Assessment • Stable outlook. We expect debt metrics to be contained • GENM handled well the increase of gaming duties in within rating parameters and GENM’s strong cashflow Malaysia through cost rationalization and operational generation, excellent liquidity position (MYR7.1b cash efficiencies, with 30% EBITDA margin for the Malaysian pile) and well-extended debt maturity profile continue to hospitality. Better performances were seen in the UK underpin its rating. The full impact of Empire Resorts will and US and 9M19 EBITDA came to MYR2.1b. be monitored in 2020. Opening of the outdoor theme park (OTP) would be a positive catalyst. • The settlement reached between GENM and Fox/Disney cleared uncertainty around the OTP, which is now • Upside potential: 1) n/a expected to open earlier in 2H20 (from early 2021). • Downside risk: 1) Substantial debt-funded investments, Visitor numbers grew 10% to 14.1m in 1H19 (2018: shareholder distributions and/or cost increases, 2) FFO 25.9m) and we expect it to gradually increase alongside net debt cover <0.4x, net gearing >0.25x, 3) Weaker the completion of new attractions under the GITP. credit profile of Genting Bhd. • Plenty of rating headroom. The GITP, which incurred Outstanding Last Spread over about MYR8.4b cost up till Jul 2019, is near its tail end Security (MYR m) Yield MGS (bps) and we expect to see the rise in debt taper off and a GENMMK 4 1/2 08/24/20 1100 3.44 60 significant fall in capex after its completion. At an GENMMK 4.78 03/31/22 1250 3.63 63 expected peak debt load of ~MYR10.5b, net gearing is GENMMK 4.98 07/11/23 1400 3.80 70 estimated to be around 0.20x and FFO/net debt cover GENMMK 4.9 08/22/25 1300 3.88 64 to remain strong at around 0.7x, in our view. GENMMK 4.98 03/31/27 1100 3.93 64 GENMMK 5.3 07/11/28 750 4.07 78 GENMMK 5.2 03/31/32 250 4.21 77 • The acquisition of loss-making Empire Resorts will GENMMK 5.58 07/11/33 450 4.23 72 weigh on GENM’s performance and the former is likely to require more investments. Nonetheless, our gaming analyst forecasts GENM’s annual EBITDA to be at least MYR2.5b over the next 2 years. Page 47 Genting Malaysia Bhd (GENM): AAA/Gaming GENM: Selected indicators GENM: Adjusted EBITDA by country (Leisure & Hospitality) FYE 31 Dec (MYR m) 2016 2017 2018 9M19 MYR m Malaysia UK US Profit & Loss Highlights 2,500 2,297 Revenue 8,932 9,329 9,928 7,965 1,931 1,942 Operating income 2,925 1,129 152 1,392 2,000 1,805 Operating margin 32.8% 12.1% 1.5% 17.5% 1,633 PBT 3,091 1,318 -4 1,203 1,500 PBT margin 34.6% 14.1% 0.0% 15.1% Net profit 2,801 1,071 -86 1,050 1,000 Net profit margin 31.4% 11.5% -0.9% 13.2% 500 260 231232 306 224 112 176 172 Balance Sheet Highlights 0 Current assets 6,129 7,059 9,339 8,714 182 2015 2016 2017 2018 9M19 Current liabilities 4,032 3,193 3,383 4,920 -500 -124 Current ratio 1.52x 2.21x 2.76x 1.77x Cash & cash equivalents 4,856 5,997 8,000 7,101 Total equity 19,745 19,142 17,953 17,869 LT debt 3,223 6,591 9,283 8,538 LT gearing 0.16x 0.34x 0.52x 0.48x GENM: Gearing ST debt 1,285 488 478 1,409 ST gearing 0.07x 0.03x 0.03x 0.08x MYR m ST debt LT debt Total debt 4,508 7,079 9,760 9,947 10,000 Gross gearing Net gearing 0.60x Gross gearing 0.23x 0.37x 0.54x 0.56x 0.56x Net gearing Net Cash 0.06x 0.10x 0.16x 9,000 0.50x Cash/ST debt 3.78x 12.29x 16.75x 5.04x 8,000 8,538 EBITDA 3,726 2,069 2,873 2,097 7,000 0.40x Debt/EBITDA* 1.21x 3.42x 3.40x 3.56x 6,000 5,000 0.30x Cash Flow Highlights 4,000 FFO 2,281 2,117 2,516 1,976 0.20x 3,000 FFODC* 0.51x 0.30x 0.26x 0.26x 0.16x 2,000 1,409 OCF 2,417 2,253 2,518 1,976 0.10x 1,000 Interest paid 163 236 306 438 Net Cash OCF interest cover* 14.9x 9.5x 8.2x 4.5x 0 0.00x OCFDC* 0.54x 0.32x 0.26x 0.26x 2016 2017 2018 9M19 Sources: Bloomberg, Company, Maybank KE * Annualized interim figures Page 48 IJM Corporation Bhd (IJM): AA3/Construction Credit/Bond View Key Credit Assessment • Stable outlook. IJM’s credit profile reflect diversified • 1HFY3/20 results characterized by higher revenue of businesses, robust construction order book, adequate MYR3.1b (+13% YoY) and pretax profit of MYR258m financial flexibility and favorable debt maturity profile (+85% YoY), mainly driven by higher progress billings for which moderate its elevated debt level. property development, reduced FX losses at plantation, better cargo throughput at Kuantan port and higher • Upside potential: 1) Maintain leading position in contribution from toll concessions. construction while enduring property cyclicality and adjusted FFODC rising >0.25x. • Gross/net gearing kept steady at 0.58x/0.44x, but total • Downside risk: 1) Poor work execution, weaker property debt climbed to MYR6.8b. FFODC of 0.13x in FY3/19 outlook and support for non-recourse debts such that stayed close to the 0.12x downside threshold, leaving FFODC falls <0.12x. little rating headroom. We think a temporary breach may be tolerated by RAM as IJM has 5,470 acres of land and MYR1.6b cash for financial flexibility and the bulk of debt are long term. Outstanding Last Spread over Security (MYR m) Yield MGS (bps) • Business as usual for construction with an order book of IJMMK 4.73 04/10/20 150 3.35 69 MYR5.1b as at end-Sep 2019. Order replenishment may IJMMK 4.85 04/09/21 150 3.50 61 possibly come from the revived ECRL and Penang Light IJMMK 4.83 06/10/22 300 3.75 73 City Phase 2 (estimated value of up to MYR1b). Risk is IJMMK 4.64 06/02/23 200 3.84 75 weak replenishment opportunities domestically. IJMMK 4.6 10/17/24 100 4.01 82 IJMMK 4.9 04/21/25 200 4.02 80 IJMMK 5.05 08/18/28 200 4.27 98 • Kuantan Port throughput to be supported by existing IJMMK 4.76 04/10/29 250 4.32 103 and new companies in the Malaysia-China Kuantan Industrial Park and strong recovery in CPO prices is a boon for plantation. Property to remain satisfactory on the back of MYR1.9b unbilled sales and MYR1.6b sales target for FY3/20. Page 49 IJM Corporation Bhd (IJM): AA3/Construction IJM: Selected indicators IJM: PBT by segment FYE 31 Mar (MYR m) 2017 2018 2019 1H20 MYR m 1HFY3/19 1HFY3/20 100 Profit & Loss Highlights 83 78 79 80 Revenue 6,065 5,966 5,656 3,118 80 67 Operating income 1,082 798 745 399 60 Operating margin 17.8% 13.4% 13.2% 12.8% 40 33 33 PBT 1,010 611 648 258 29 PBT margin 16.7% 10.2% 11.5% 8.3% 20 Net profit 767 378 441 165 0 Net profit margin 12.6% 6.3% 7.8% 5.3% -20 -10 Balance Sheet Highlights -40 Current assets 11,620 11,618 12,838 13,144 -60 -58 Current liabilities 4,285 6,360 5,736 6,015 -80 Current ratio 2.71x 1.83x 2.24x 2.19x Cash & cash equivalents 2,148 1,468 1,558 1,603 Total equity 10,817 10,518 11,384 11,683 LT debt 4,226 2,976 4,832 4,884 IJM: Gearing LT gearing 0.39x 0.28x 0.42x 0.42x ST debt 1,743 2,904 1,797 1,913 ST debt LT debt MYR m ST gearing 0.16x 0.28x 0.16x 0.16x Gross gearing Net gearing 6,000 0.70x Total debt 5,969 5,880 6,629 6,797 Gross gearing 0.55x 0.56x 0.58x 0.58x 5,000 0.58x 0.60x Net gearing 0.35x 0.42x 0.45x 0.44x 4,884 0.50x 4,000 Cash/ST debt 1.23x 0.51x 0.87x 0.84x 0.44x 0.40x Cash Flow Highlights 3,000 0.30x FFO 1,009 726 871 n.a. 1,913 2,000 FFODC* 0.17x 0.12x 0.13x n.a. 0.20x OCF 1,491 891 99 327 1,000 0.10x Interest paid 250 249 342 166 OCF interest cover 6.0x 3.6x 0.3x 2.0x 0 0.00x OCFDC* 0.25x 0.15x 0.01x 0.10x FY3/17 FY3/18 FY3/19 1HFY3/20 Sources: Bloomberg, Company, Maybank KE * Annualized interim figures Page 50 Kuala Lumpur Kepong Bhd (KLK): AA1/Plantation Credit/Bond View Key Credit Assessment • Stable outlook. Credit profile underpinned by robust FFB • KLK’s earnings fell 31% YoY to MYR951m in FY9/19 as production, diversified business with downstream weak CPO prices and increase in production costs operations and very strong cash position. This assumes no halved plantation segment earnings. Manufacturing huge debt-funded acquisition or material erosion in cash segment earnings was flattish, while the small holdings. contribution from property segment rose 26% YoY on progress recognition. • Upside potential: 1) Enlarged mid-/downstream segments with robust performance, 2) Gearing <0.3x, FFODC >0.6x. • FFB output grew 5% YoY (FY9/18: 1.4%) to 4,104k MT in • Downside risk: 1) Prolonged weak CPO price, 2) Aggressive FY9/19. Our plantation analyst is looking at a similar debt-funded acquisition, 3) Gearing >0.5x, FFODC <0.3x, pace growth for FFB output in FY9/20, underpinned by 4) Reduced cash buffer such that net gearing >0.25x and KLK’s trees with an average age of 12.4 years. FFO net debt cover <0.4x. • KLK maintained a very high cash position, providing strong liquidity and balance sheet flexibility. At end-Sep Outstanding Last Spread over 2019, KLK held MYR3.7b cash after issuing MYR2b new Security (MYR m) Yield MGS (bps) sukuk wakalah. While the sukuk lifted total debt to KLKMK 4 09/02/22 1000 3.51 48 MYR6.5b, net gearing remained low at 0.25x. FFO net KLKMK 4.58 08/12/25 1100 3.69 45 debt cover of 0.46x is above the 0.4x rating downside KLKMK 4.65 04/24/26 500 3.72 45 trigger. KLKMK 3 3/4 09/27/29 1000 3.91 61 KLKMK 3.95 09/27/34 1000 4.05 47 • ESG risk is an increasingly important credit factor. On the fire incident in its Indonesian subsidiary’s estate, the fire was extinguished in <24hours. KLK maintains firefighting teams and has zero burning policy in its plantation estates. Page 51 Kuala Lumpur Kepong Bhd (KLK): AA1/Plantation KLK: Selected indicators KLK: Operating results by segment FYE 30 Sep (MYR m) FY16 FY17 FY18 FY19 MYR m FY9/18 FY9/19 Profit & Loss Highlights 900 839 Revenue 16,506 21,004 18,384 15,534 800 Operating income 1,865 1,624 1,374 951 Operating margin 11.3% 7.7% 7.5% 6.1% 700 PBT 1,712 1,450 989 824 600 PBT margin 10.4% 6.9% 5.4% 5.3% 500 437 435 400 Net profit 1,683 1,067 660 651 400 Net profit margin 10.2% 5.1% 3.6% 4.2% 300 200 Balance Sheet Highlights 73 100 35 44 62 Current assets 6,368 6,694 5,991 8,134 0 Current liabilities 3,211 3,141 2,738 2,869 Plantations Manufacturing Property dev Others Current ratio 1.98x 2.13x 2.19x 2.83x Cash & cash equivalents 2,000 2,041 1,473 3,700 Total equity 11,288 12,440 12,046 11,287 LT debt 2,968 3,067 3,062 5,170 KLK: Gearing LT gearing 0.26x 0.25x 0.25x 0.46x ST debt 1,572 1,376 1,221 1,349 MYR m ST debt LT debt ST gearing 0.14x 0.11x 0.10x 0.12x Gross gearing Net gearing 6,000 0.7x Total debt 4,540 4,443 4,283 6,519 5,170 Gross gearing 0.40x 0.36x 0.36x 0.58x 0.6x 5,000 0.58x Net gearing 0.23x 0.19x 0.23x 0.25x 0.5x Cash/ST debt 1.27x 1.48x 1.21x 2.74x 4,000 0.4x Cash Flow Highlights 3,000 0.3x FFO 1,439 1,598 1,555 1,284 2,000 0.25x FFODC* 0.32x 0.36x 0.36x 0.20x 1,349 0.2x OCF 1,475 1,610 1,128 1,353 1,000 0.1x Interest paid 146 174 172 166 OCF interest cover* 10.1x 9.3x 6.6x 8.1x 0 0.0x FY9/16 FY9/17 FY9/18 FY9/19 OCFDC* 0.32x 0.36x 0.26x 0.21x Sources: Bloomberg, Company, Maybank KE * Annualized interim figures Page 52 Mah Sing Group Bhd (Mah Sing): NR/Property Credit Bond View Key Credit Assessment • Stable outlook. We continue to assess Mah Sing at an A1 • 9M19 revenue and net profit was down 20% and 24% YoY rating reflecting healthy balance sheet, liquidity and cash respectively at MYR1.3b and MYR156m due to low flow generation which offset business risks in challenging progress billings as some projects are at initial stages. market conditions. The perps are unrated. Mah Sing should see little difficulty in achieving MYR1.5b sales target for 2019 with MYR1.1b sales • Upside potential: 1) Strong recovery in the property secured in 9M19, of which Klang Valley properties make sector, 2) Improving efficiency that leads to better up 66%. profitability. • Downside risk: 1) Aggressive debt-funded investment/land • Gross/net gearing remained steady at 0.53x/0.24x at banking, 2) Poor work execution or significantly weak end-Sep 2019 (we include perps in total debt) and the property sales. bulk of debt is long term. FFODC of 0.15x is robust relative to other property names we review. Mah Sing has a MYR540m perp due to be called in Mar 2020. We think Mah Sing has the capacity to call back the perp as its moderate leverage should not make refinancing Outstanding Last Spread over Security difficult and with MYR993m cash in hand. (MYR m) Yield MGS (bps) MSGBMK 6.8 PERP call 3/31/20 540 4.14 150 MSGBMK 6.55 PERP call 11/15/21 145 N/A N/A • MYR1.7b unbilled sales provide about 1 year of revenue MSGBMK 6.9 PERP call 4/4/22 650 5.19 219 visibility. It has 2,064 acres remaining land bank for development and a healthy balance sheet to support land banking. For upcoming launches, Mah Sing will continue to focus on affordable housing (defined as Page 53 Mah Sing Group Bhd (Mah Sing): NR/Property Mah Sing: Selected indicators Mah Sing: MYR bonds maturity profile FYE 31 Dec (MYR m) 2016 2017 2018 9M19 MYR m Profit & Loss Highlights 700 650 Revenue 2,958 2,916 2,193 1,347 600 Operating income 478 477 358 212 540 Operating margin 16.1% 16.3% 16.3% 15.8% 500 PBT 483 472 348 212 400 PBT margin 16.3% 16.2% 15.9% 15.7% Net profit 360 359 271 156 300 Net profit margin 12.2% 12.3% 12.3% 11.6% 200 145 Balance Sheet Highlights 100 Current assets 4,640 5,120 4,655 4,303 0 Current liabilities 1,496 1,705 1,540 1,272 2020 2021 2022 Current ratio 3.10x 3.00x 3.02x 3.38x Cash & cash equivalents 924 1,216 1,220 993 Total equity 3,296 3,462 3,494 3,477 LT debt 1,399 1,823 1,772 1,681 Mah Sing: Gearing LT gearing 0.42x 0.53x 0.51x 0.48x ST debt 142 142 120 149 MYR m ST debt LT debt ST gearing 0.04x 0.04x 0.03x 0.04x 2,000 Gross gearing Net gearing 0.60x Total debt 1,541 1,966 1,893 1,830 1,800 0.53x 0.50x Gross gearing 0.47x 0.57x 0.54x 0.53x 1,600 1,681 Net gearing 0.19x 0.22x 0.19x 0.24x 1,400 0.40x Cash/ST debt 6.49x 8.55x 10.15x 6.68x 1,200 1,000 0.30x Cash Flow Highlights 800 0.24x FFO 422 387 286 202 0.20x 600 FFODC* 0.27x 0.20x 0.15x 0.15x OCF 483 373 640 291 400 149 0.10x Interest paid 56 42 35 24 200 OCF interest cover* 8.6x 9.0x 18.3x 12.3x 0 0.00x OCFDC* 0.31x 0.19x 0.34x 0.16x 2016 2017 2018 9M19 Sources: Bloomberg, Company, Maybank KE * Annualized interim figures Page 54 Press Metal Aluminium Holdings Bhd (Press Metal): AA3/Aluminium Credit Bond View Key Credit Assessment • Stable outlook. It reflects Press Metal’s low cost • Press Metal posted lower revenue and pretax profit of advantage, healthy debt servicing ability and no new large MYR6.4b and MYR448m respectively (-7%, -33% YoY) due debt-funded investments. Key risk is weaker aluminium to lower aluminium prices and absent one-off income prices or rise in raw material costs. from insurance claim. Aluminium prices have recovered to over USD1,800/MT in Dec 2019 from the year-low of • Upside potential: 1) Little possibility in the near term. USD1,705/MT in September. • Downside risk: 1) Aggressive debt-funded investments, 2) Poor work execution at Bintulu Line 3 and Bintan alumina • Including the MYR1b sukuk issued in October, Press project, 3) Persistently weak aluminium prices, 4) Metal’s debt load would be around MYR4.5b, which Excessive dividend payments, 5) FFODC <0.25x, gross translate to a gearing of about 1x and FFODC of about gearing >0.7x. 0.25x on proforma basis. We don’t expect a rating action from RAM as the agency expects the weaker debt metrics following large investments to be temporary and expect to see some deleveraging after the completion of Bintulu Line 3 in 2021. Key risk is Outstanding Last Spread over Security weaker aluminium prices, especially if it falls below (MYR m) Yield MGS (bps) Press Metal’s production cost (1Q19: USD1,657/MT). PMAHMK 4.1 10/17/24 550 3.99 80 PMAHMK 4.2 10/16/26 200 4.13 84 PMAHMK 4.3 10/17/29 250 4.26 96 • Press Metal has low cost advantage in aluminium smelting with its smelters positioned in the 1st or 2nd quartile of the global cost curve. This underpins its strong profitability with EBITDA margins of 13%-18% in the last 5 years despite an aluminium price downcycle. Its cost advantage is attributed to 1) favorable electricity costs, 2) tax benefits and 3) low logistics costs. Page 55 Press Metal Aluminium Holdings Bhd (Press Metal): AA3/Aluminium Press Metal: Selected indicators Press Metal: MYR bonds maturity profile 2016 2017 2018 1H19 FYE 31 Dec (MYR m) MYR m Profit & Loss Highlights 600 Revenue 6,649 8,176 9,170 6,425 550 EBITDA 1,196 1,399 1,466 1,102 500 EBITDA margin 18.0% 17.1% 16.0% 17.2% Operating income 828 995 1,054 572 400 Operating margin 12.5% 12.2% 11.5% 8.9% PBT 675 809 870 448 300 250 PBT margin 10.1% 9.9% 9.5% 7.0% 200 200 Net profit 606 746 773 412 Net profit margin 9.1% 9.1% 8.4% 6.4% 100 Balance Sheet Highlights 0 0 0 0 0 0 0 Current assets 2,382 2,822 3,302 3,238 0 Current liabilities 3,061 2,073 2,088 1,796 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Current ratio 0.78x 1.36x 1.58x 1.80x Cash & cash equivalents 378 259 199 272 Total equity 2,716 2,970 4,028 3,963 Press Metal: Gearing LT debt 1,780 2,186 2,021 2,495 LT gearing 0.66x 0.74x 0.50x 0.63x MYR m ST debt LT debt ST debt 1,602 937 964 1,044 3,000 Gross gearing Net gearing 1.40x ST gearing 0.59x 0.32x 0.24x 0.26x 2,495 Total debt 3,382 3,124 2,985 3,540 2,500 1.20x Gross gearing 1.25x 1.05x 0.74x 0.89x 1.00x Net gearing 1.11x 0.96x 0.69x 0.82x 2,000 0.89x Debt/EBITDA 2.83x 2.23x 2.04x 2.41x 0.82x 0.80x Cash/ST debt 0.24x 0.28x 0.21x 0.26x 1,500 Cash Flow Highlights 1,044 0.60x 1,000 FFO 1,295 1,373 1,453 832 0.40x OCF 936 394 1,110 781 500 Interest costs 156 189 186 139 0.20x FFODC* 0.38x 0.44x 0.49x 0.31x 0 0.00x EBITDA/Interest 7.65x 7.39x 7.87x 7.92x 2016 2017 2018 9M19 Sources: Bloomberg, Company, Maybank KE * Annualized interim figures Page 56 UEM Sunrise Bhd (UEMS): AA-/Property Credit Bond View Key Credit Assessment • Stable outlook. UEMS has improved its leverage position • UEMS reported lower pretax profit of MYR178m (-48% and recurring land sales expected to support its financial YoY) due to a lack of high-margin land sale. Property flexibility. UEMS’ benefit from a high likelihood of sales was slow with just MYR720m made during the parental support enhances its credit strength. period. With MYR880m new launches, MYR685m of unsold stock and MYR720m of completed inventories, • Upside potential: 1) Rise in property demand from JB- UEMS thinks it can achieve its MYR1.2b sales target. Singapore Rapid Transit System project. • Downside risk: 1) Domestic property market remains • 4Q19 earnings to see a lift from lumpy recognition from challenging with Johor having one of the highest a project and land sale in Melbourne. In 2020, its residential property overhang, 2) Weakened support from overseas projects, more land sales and MYR2.4b and/or credit profile deterioration at UEM Group. unbilled sales are expected to support earnings amid a prevailing downcycle in the domestic property market. Outstanding Last Spread over • UEMS has made good stride in deleveraging, aided by Security (MYR m) Yield MGS (bps) land sales, with gross/net gearing down to 2016 levels UEMSMK 4.58 04/10/20 150 3.31 66 at 0.49x/0.40x. Given its solid financial flexibility, UEMSMK 4.8 12/11/20 200 3.35 48 MYR714m cash on hand and recurring land sales, we UEMSMK 4.9 06/30/21 200 3.33 41 have little concerns on the repayment/refinancing of UEMSMK 4.85 10/29/21 350 3.35 39 MYR350m bonds that will mature in 2020. UEMS held UEMSMK 4.8 04/08/22 150 3.50 50 MYR5.6b of land for property development as at end- UEMSMK 5.06 12/09/22 300 3.54 49 UEMSMK 5 05/19/23 500 3.61 52 Sep 2019. UEMSMK 4.98 10/31/23 100 3.60 48 UEMSMK 4 3/4 03/22/24 300 3.68 52 • Khazanah is UEMS’ ultimate parent via an indirect 66% UEMSMK 5.32 12/11/24 100 3.72 52 stake through UEM Group. The shareholding and UEMSMK 5.15 10/31/25 250 3.81 56 continuing strategic importance to UEM Group result in a one-notch rating uplift. Page 57 UEM Sunrise Bhd (UEMS): AA-/Property UEMS: Selected indicators UEMS: Debt maturity profile of IMTNs FYE 31 Dec (MYR m) 2016 2017 2018 9M19 MYR m Profit & Loss Highlights 700 Revenue 1,841 1,861 2,044 1,747 600 600 Operating income 218 249 476 267 550 Operating margin 11.8% 13.4% 23.3% 15.3% 500 450 PBT 218 194 416 178 400 400 PBT margin 11.8% 10.4% 20.4% 10.2% 350 Net profit 148 107 281 98 300 250 Net profit margin 8.1% 5.8% 13.7% 5.6% 200 Balance Sheet Highlights 100 Current assets 5,818 5,321 5,458 4,041 0 Current liabilities 2,585 2,812 3,519 2,567 2020 2021 2022 2023 2024 2025 Current ratio 2.25x 1.89x 1.55x 1.57x Cash & cash equivalents 789 933 1,128 714 Total equity 7,193 7,265 7,454 7,661 LT debt 2,404 2,734 2,395 2,639 UEMS: Gearing LT gearing 0.33x 0.38x 0.32x 0.34x ST debt 1,310 1,486 2,289 1,124 MYR m ST debt LT debt ST gearing 0.18x 0.20x 0.31x 0.15x 3,000 Gross gearing Net gearing 0.70x Total debt 3,715 4,220 4,684 3,763 2,639 0.60x Gross gearing 0.52x 0.58x 0.63x 0.49x 2,500 Net gearing 0.41x 0.45x 0.48x 0.40x 0.49x 0.50x 2,000 Cash/ST debt 0.60x 0.63x 0.49x 0.63x 0.40x 0.40x 1,500 Cash Flow Highlights 1,124 0.30x FFO n.a. n.a. n.a. n.a. 1,000 FFODC* n.a. n.a. n.a. n.a. 0.20x OCF -694 -174 110 855 500 0.10x Interest paid 144 177 196 108 OCF interest cover* n.m. n.m. 0.6x 7.9x 0 0.00x OCFDC* n.m. n.m. 0.02x 0.23x 2016 2017 2018 9M19 Sources: Bloomberg, Company, Maybank KE * Annualized interim figures Page 58 Appendices Strictly Private & Confidential Page 59 Appendix: List of Outstanding Government-Guaranteed (GG) Bonds Issuer Name MYR’b DanaInfra Nasional Berhad 63.8 Prasarana Malaysia Berhad 30.4 Lembaga Pembiayaan Perumahan Sektor Awam 22.5 Perbadanan Tabung Pendidikan Tinggi Nasional 21.6 Khazanah Nasional Berhad 12.5 Pengurusan Air SPV Berhad 12.2 Projek Lebuhraya Usahasama Berhad 11.0 GovCo Holdings Berhad 7.2 Turus Pesawat Sdn Berhad 5.3 1Malaysia Development Berhad 5.0 Jambatan Kedua Sdn Berhad 4.6 Bank Pembangunan Malaysia Berhad 3.8 MKD Kencana Sdn Berhad 3.5 PR1MA Corporation Malaysia 2.5 Johor Corporation 1.8 Small Medium Enterprise Development Bank Malaysia Berhad 1.8 Pelabuhan Tanjung Pelepas Sdn Berhad 1.7 Malaysia Debt Ventures Berhad 1.2 Bakun Hydro Power Generation Sdn Berhad 1.0 Senai Airport Terminal Services Sdn Berhad 0.3 Grand Total 213.7 As of end-Dec 2019 Sources: Bloomberg, BPAM, Maybank KE Strictly Private & Confidential Page 60 Appendix: PDS Maturity in 2020 – Corporates Issuer Name MYR'b Cagamas Berhad 8.12 Pengurusan Air SPV Berhad 2.45 Danga Capital Berhad 2.00 Prasarana Malaysia Berhad 1.53 Pelabuhan Tanjung Pelepas Sdn Berhad 1.50 Sunway Treasury Sukuk Sdn Berhad 1.43 SunREIT Unrated Bond Berhad 1.20 Celcom Networks Sdn Berhad 1.20 Khazanah Nasional Berhad 1.20 GENM Capital Berhad 1.10 Rantau Abang Capital Berhad 1.00 Malaysia Airports Capital Berhad 1.00 Valuecap Sdn Berhad 1.00 Cagamas MBS Berhad 0.79 Sunway Berhad 0.61 Boustead Holdings Berhad 0.61 First Resources Limited 0.60 Mah Sing Group Berhad 0.54 Manjung Island Energy Berhad 0.52 Jimah Energy Ventures Sdn Berhad 0.50 Projek Lebuhraya Usahasama Berhad 0.50 Tanjung Bin Power Sdn Berhad 0.50 Sources: Bloomberg, BPAM, Maybank KE Strictly Private & Confidential Page 61 Appendix: PDS Maturity in 2020 - Corporates (continued) Issuer Name MYR'b Maxis Broadband Sdn Berhad 0.50 Putrajaya Holdings Sdn Berhad 0.48 Impian Ekspresi Sdn Berhad 0.45 Malakoff Power Berhad 0.41 BGSM Management Sdn Berhad 0.39 Perbadanan Kemajuan Negeri Selangor 0.38 Bakun Hydro Power Generation Sdn Berhad (fka Sarawak Hidro Sdn Berhad) 0.36 MMC Corporation Berhad 0.36 Eastern & Oriental Berhad 0.35 UEM Sunrise Berhad 0.35 DRB-Hicom Berhad 0.33 DanaInfra Nasional Berhad 0.30 Gamuda Berhad 0.30 UMW Holdings Berhad 0.30 Lembaga Pembiayaan Perumahan Sektor Awam 0.30 Kedah Cement Sdn Berhad (fka Lafarge Cement Sdn Bhd) 0.28 Magnum Corporation Sdn Berhad 0.23 Puncak Wangi Sdn Berhad 0.20 Lingkaran Trans Kota Sdn Berhad 0.20 Bandar Serai Development Sdn Berhad 0.20 Special Coral Sdn Berhad 0.20 Telekom Malaysia Berhad 0.20 Sources: Bloomberg, BPAM, Maybank KE Strictly Private & Confidential Page 62 Appendix: PDS Maturity in 2020 - Corporates (continued) Issuer Name MYR'b Malaysia Debt Ventures Berhad 0.20 WCT Holdings Berhad 0.18 Aman Sukuk Berhad 0.18 Berjaya Land Berhad 0.18 ALSREIT Capital Sdn Berhad 0.16 True Ascend Sdn Berhad 0.15 Anih Berhad 0.15 IJM Corporation Berhad 0.15 QSR Stores Sdn Berhad 0.14 Hektar Black Sdn Berhad 0.13 BEWG (M) Sdn Berhad 0.12 Special Power Vehicle Berhad 0.12 Teknologi Tenaga Perlis Consortium Sdn Berhad 0.11 Jana Pendidikan Malaysia Sdn Berhad 0.10 Gas Malaysia Berhad 0.10 Kapar Energy Ventures Sdn Berhad 0.10 Aquasar Capital Sdn Berhad 0.10 Westports Malaysia Sdn Berhad 0.10 Silver Sparrow Berhad 0.10 Others - Each issuer with *Exclude short-term instruments Sources: Bloomberg, BPAM, Maybank KE Strictly Private & Confidential Page 63 Appendix: PDS Maturity in 2020 - Financial Institution (Bank) Type Issuer Name Maturity Callable MYR'b Bank Malayan Banking Berhad 0.09 3.36 3.45 CIMB Bank Berhad 3.00 3.00 CIMB Group Holdings Berhad 0.25 2.60 2.85 Alliance Bank Malaysia Berhad 1.20 1.20 AmBank Islamic Berhad 0.90 0.25 1.15 United Overseas Bank (Malaysia) Berhad 1.00 1.00 RHB Bank Berhad 0.80 0.80 HSBC Amanah Malaysia Berhad 0.75 0.75 Bank Islam Malaysia Berhad 0.70 0.70 AmBank (M) Berhad 0.70 0.70 MBSB Bank Berhad (fka Asian Finance Bank Berhad) 0.30 0.30 Hong Leong Financial Group Berhad 0.25 0.25 RHB Investment Bank Berhad 0.20 0.20 TOTAL 3.24 13.11 16.35 *Exclude short-term instruments Sources: Bloomberg, BPAM, Maybank KE Strictly Private & Confidential Page 64 Appendix: PDS Maturity in 2020 - Financial Institution (Non-bank FI & Others) Type Issuer Name Maturity Callable MYR'b DFI Imtiaz Sukuk II Berhad 0.6 0.6 Small Medium Enterprise Development Bank Malaysia Berhad 0.4 0.4 Sabah Credit Corporation 0.4 0.4 Sabah Development Bank Berhad 0.4 0.4 Foreign Krung Thai Bank Public Company Limited 1.0 1.0 KT Kira Sertifikalari Varlik Kiralama A.S. 0.8 0.8 First Abu Dhabi Bank PJSC 0.5 0.5 TF Varlik Kiralama A. 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