Maybank’s forecast retained despite Hyflux deal termination
KUALA LUMPUR: Malayan Banking Bhd’s (Maybank) 2019E to 2021E earnings forecast have been retained despite the recent Hyflux Ltd (Hyflux) bailout deal termination in Singapore.
Affin Hwang Investment Bank Bhd (Affin Hwang Capital) recalled that based on a recent news report, the bailout deal between Singapore’s Hyflux and an Indonesian consortium led by the Salim Group (SM Investments Pte Ltd) has fallen through and meanwhile, Hyflux has until April 30 before its debt moratorium expires.
“We understand that Hyflux is planning to restart restructuring talks with its creditors and exploring other outcomes other than liquidation,” the research firm said.
“We view this as a positive development, but note that it has yet to seek an extension of its debt moratorium from the Singapore High Court.”
“To recap, Maybank has a total exposure of RM1.95 billion (S$658.6m) to Hyflux since September 2013 (through Maybank Singapore and Maybank Kim Securities Pte Ltd), which covers project financing for Tuaspring’s Integrated Water and Power Plant (IWPP) (S$602.4 million) and TuasOne Waste-to-Energy Plant (S$56.2 million, to be completed by May 2019).”
Despite this latest development, Affin Hwang Capital has kept its 2019E-2020E-2021E earnings forecasts on Maybank unchanged based on credit cost assumptions of 47 basis points (bps), 47.9bps and 50.6bps respectively pending further developments and clarity of the situation.
“Based on the gross value of Maybank’s loan to Hyflux, RM1.95 billion, this accounts for 0.38 per cent of Maybank’s outstanding loan size of RM517 billion.
“Meanwhile, management’s net credit cost assumption of 40bps for 2019E would have built-in some expectation for Hyflux’s case, but not all, in our view.”
According to A ff in H wang Capital, based on a worst-case-scenario, the Public Utilities Board of Singapore will take over of the loss-making Tuaspring Desalination Plant without seeking compensation from Tuaspring.
If this were to happen, there search firm believed that Hyflux’s account would have to be fully written-off from Maybank’s books.
“Based on the assumption of a net outstanding loan to Hyflux of RM1.63 billion, this may work out to be 15.8 per cent of our 2019E’s pre-tax profit forecast of RM10.3 billion or a 43bps reduction of CET 1 ratio (15 per cent as at December 2018).”
We understand that Hyflux is planning to restart restructuring talks with its creditors and exploring other outcomes other than liquidation. Affin Hwang Capital