RAM expects hybrid sukuk to dominate future issuance

KUCHING: Ratings agency RAM Ratings noted the market’s growing preference for hybrid sukuk – a sukuk structure that combines two or more differing elements.

These elements could comprise more than one syariah contract, a mixture of debt and equity or underlying assets consisting of tangible and intangible assets.

Previously, sukuk structures had been predominantly structured using only one syariah contract, such as ijarah, musharakah, mudharabah or commodity murabahah.

However, conformity to the Accounting and Auditing Organisation of Islamic Financial Institutions’ ( AAOIFI) Shariah standards has led to a progressive shift towards hybrid sukuk.

“Given the wide acceptance of hybrid sukuk by almost all Islamic jurists, this structure is likely to dominate future sukuk issues,” highlight Ruslena Ramli, Head Islamic Finance at RAM.

The Islamic finance landscape has developed into a vibrant financial market that has attracted worldwide attention. Given its pace of progress, its products have evolved to cater to the needs of current times.

The ongoing efforts to pursue a centralised global model could facilitate and strengthen the Islamic finance ecosystem.

“With the second Alex Corp’s contract worth US$ 100 million won in April, its current orderbook stands at circa RM1.54 billion with earnings visibility up to end-2019,” the research arm said.

Meanwhile, with the weak profit margin recorded in 3Q17, Kenanga Research cut FY17 and FY18 estimates by six per cent and eight per cent, respectively, mainly to adjust for lower profit margin.

It also introduced FY19 estimates with earnings expected to grow at 10 per cent.

Overall, while 3Q17 was slower than expected, Kenanga Research remained positive on Pestech for the group’s growth story, especially for the Indochina growth area.

“In addition, as its billings are priced in US dollar and payment guaranteed by financiers like World Bank and Asian Development Bhd, risk of default payment is fairly low,” the research arm said.

As such, Kenanga Research maintained its ‘outperform’ call on Pestech with the target price remaining at RM2 per share after rolling over its valuation base year to current year 2018 (CY18) from CY17 previously.