Establishment of Sukuk program

Last week, Perak Transit (Ptrans) announced and signed an agreement for proposed establishment of an Islamic Medium-Term Note (Sukuk Murabahah) of up to RM500mn in nominal value. The Sukuk shall have a tenure of fifteen years from the date of first issuance.

Utilisation of proceeds

According to announcement, the proceeds raised from the Sukuk program shall be utilised to refinance existing bank borrowings and finance its capital expenditure and working capital requirements. In specific, management indicated that an initial drawdown of estimated RM300mn will be earmarked for repayments of existing borrowings. The balance will be drawn down when is needed to fund Ptrans’ future capital expenditure.

Earnings impact is immaterial

The MTN is unrated and shall carry a profit rate of average 5%, according to management. Based on FY18 audited accounts, the debt weighted average interest rate is estimated at 6.14% (see table 1). This would mean the new Sukuk program can potential provide interest/profit savings of estimated RM2.4mn per year, which represents 4.8% of our FY20 earnings projections.

Forecast & Valuation

We keep our FY19-21 earnings projections unchanged as the interest savings are insignificant. We reiterate Buy for Ptrans with unchanged fair value at RM0.44/share.

Source: TA Research - 23 Sept 2019