By CIMB Research
Target price: RM13.00
HONG Leong Bank Bhd (HLB) is expected to embark on a rights issue exercise to raise its fully-loaded common equity tier 1 (CET1) ratio to at least 10 % from 8.1%.
CET1 is one of the measures of a bank’s financial strength.
CIMB research said the exercise is likely due to HLB’s capital management plans that were announced via conference call on Feb 15.
“We have two scenarios for the possible magnitude of the rights issue – RM1.87bil to raise the bank’s CET1 ratio to 10% and RM2.36bil to increase it to 10.5%,” it added.
CIMB Research noted that the new shares to be issued would amount to 8%-10% of its share base.
Furthermore, the research house said the recent announcement on the proposed disposal of Menara Raja Laut for RM220mil could be part of the capital management plan to boost capital ratios via the sale of non-core assets and the issuance on new equity.
Based on its simulation, it added that the exercise would dilute HLB’s June 31, 2017 (FY17) earnings per share (EPS) by 6% to 7%, assuming RM1.9bil to RM2.4bil funds are raised via the rights issue exercise.
Other assumptions are a 15% discount for the rights price, and 3.5% interest rate for the new proceeds.
The research house is keeping a “reduce” call on HLB due to its below-industry loan growth, weak fee income growth, an upturn in credit costs as well as the expected potential rights issue.
CIMB Research is maintaining its dividend discount model-based target price (cost of equity of 10.6%; long-term growth of 4%).
It said the exercise was not the main reason it was advising investors to reduce their exposure to the stock.
“We are more worried about its weak loan and fee income growth in 2015 as well as the impact of an expected upturn in credit costs,” CIMB Research added.
Target price: RM1.25
AMRESEARCH is maintaining a “buy” call on Benalec Holdings Bhd with an unchanged target price of RM1.25 per share, which would peg the stock at a 45% discount based on its sum-of-parts value.
Tanjung Piai Maritime Industries Sdn Bhd, Benalec Holdings’ wholly-owned subsidiary, inked a memorandum of understanding (MoU) with Pestech Sdn Bhd, (PSB) for the supply of power infrastructure situated at the Tanjung Piai Integrated Petroleum and Maritime Industrial Park (TPIPMIP).
Pestech Sdn Bhd is a fully-owned subsidiary of Pestech International Bhd.
The research house said the group’s secured contract reflected its commitment to develop a 3,485-acre Tanjung Piai concession into a future oil storage hub via TPIPMIP.
AmResearch expects initial work between 100 acres and 200 acres to start within the next few months at Tanjung Piai
Under the MoU, it said that PSB would design the electrical infrastructure for TPIPMIP.
“It will carry out the design, manufacturing, testing, delivery of equipment and installation, construction as well as commissioning of the required infrastructure on a turnkey basis,” it added.
However, it noted that a definitive contract would be formed within the next six months whereby the terms and conditions of the project would be announced later.
“All in, we believe the increased level of activities will improve the visibility of TPIPMIP when attracting major international oil storage players,” AmResearch said.
The research house pointed out that the real challenge was finding trail-blazing offtakers.
Meanwhile, negotiations with 1MY Strategic Oil Terminal is expected to be completed by June 11.
Moving forward, the research house said the group was expected to plan for other infrastructure requirements within the industrial park as it had submitted plans to raise RM200mil via convertible bonds.
By AllianceDBS Research
Target price: RM1.15
BUMI Armada Bhd bagged a contract for the conversion, supply and operations and maintenance of a floating storage unit (FSU) worth RM1.1bil to ElectroGas Malaysia.
AllianceDBS Research said the contract was for a period of 18 years and 2 months and the FSU would commence operations next year.
However, the research house expects the earnings from the contract to be negligible, below 5% for financial year 2016 (FY16).
“The contract will not overstretch Bumi Armada’s operational capacity as FSU conversions are much simpler compared to floating production storage and offloading (FPSO) conversions,” it noted.
AllianceDBS Research expects the capital expenditure to be between RM100mil and RM200mil, which can be funded from the group’s cash pile of RM3.3bil.
With the secured contract, the group’s order book stands close to RM25bil, and optional extensions would boost the order book to RM37bil.
AllianceDBS Research is maintaining a “hold” call with a target price of RM1.15 based on sum-of-parts with a price-to-earnings ratio of 16 times for FY15F.
“We view that the immediate term outlook for Bumi Armada is cloudy as the offshore support vessel and transport and installation segments will be a drag on earnings with lower asset utilisation,” it said.
Going forward, the research house said the group’s outlook in the long run is fairly secured when new FPSO conversions are completed, starting operations from 2017.