Easy concept. If match conditions, big companies will prefer issue sukuk. Sukuk not like loan, but like a project-based investment. Company issue sukuk for a mid-long-term project, Investors invest for that.

For example, Sunway, MyEG, LBS, Topglove, Prasarana, FELDA, AgroBank, CIMB.

Just my opinion...

Bear in mind not all sukuk are the same. If treating them as one homogeneous product is where the misunderstanding starts. Sukuk comes in different structures such as Murabahah, Wakalah and Ijarah, and the risk is determined by what sits underneath the structure — the asset, the cash flow and the governance — not by the word “sukuk” itself.

MEX II was a project-based sukuk tied to an unfinished highway with no operating cash flow, where repayments depended on construction progress that was later found to be falsified. That is a project and governance failure.

PTRANS, on the other hand, issued sukuk backed by operating assets with existing cash flow, used for refinancing and capital management rather than funding an uncompleted project.

The difference is not religious or semantic. One relies on future completion claims, the other relies on cash flow that already exists. That is why comparing MEX II to PTRANS is comparing two completely different risk profiles.

@cheng Capitalised sukuk interest is mainly driven by ongoing construction and expansion of terminals. Under accounting standards, financing costs directly attributable to assets under construction are capitalised until the assets are ready for use. When these projects are completed, the interest will be expensed instead, which may reduce reported profit, but this is a timing difference rather than a cash issue. The key is whether the completed assets generate cash flow and whether operating cash flow continues to cover actual interest payments.

Thanks, kar kay low. I have only seen annual report 2024 and I am not sure how long has Ptrans been capitalising the interest at such a high rate. Should earnings look this good when Ptrans starts expense out the interest instead of capitalising it? I think this is the most important question that investor should ask.

@cheng Thanks for raising this — it’s actually a very good and valid question, and one that serious investors should be asking.

Capitalising sukuk interest at Ptrans is not something that only started in FY2024. It has been applied in prior years whenever there were qualifying assets under construction or expansion, in line with MFRS 123. When construction activity is elevated, the amount of capitalised interest naturally looks higher; as projects are completed, this gradually tapers off.

When sukuk interest starts to be expensed instead of capitalised, reported earnings may look lower, but this is largely a timing difference rather than a deterioration in fundamentals. Importantly, this usually coincides with the project being completed and put into use, at which point the asset should also begin contributing revenue and operating cash flow. So the shift in accounting treatment is typically accompanied by an improvement on the operating side.

Years of construction for bus terminals? I am not familiar with bus terminal construction but I personally think abnormally high capitalisation interest for years raises eyebrows. timing it maybe from accounting rules since it is allowed but in reality, its inflated earnings in P&L and the reality behind the scene - its much weaker compared to what the p&l suggests. All is well as long as you are aware of the high capitalisation rate. The other company that has high capitalisation rate is Mythical Years of Endless Growth.

That’s a fair concern, and I agree that prolonged capitalisation always deserves scrutiny. A few clarifications may help frame this more accurately.

First, the duration of capitalised interest is not driven by how long a single bus terminal takes to build, but by the portfolio of staggered projects. Ptrans does not construct one terminal, finish it, and stop. It operates on a rolling cycle of new terminals, expansions, and upgrades, which means there are almost always qualifying assets under construction at any given point in time. Under MFRS 123, borrowing costs directly attributable to those qualifying assets are required to be capitalised during the construction phase.

Second, capitalised interest does not inflate cash earnings. The cash interest is paid regardless of accounting treatment. The difference is purely timing in P&L recognition — either recognised upfront as finance cost, or capitalised and released gradually through depreciation once the asset is operational. When interest starts to be expensed, it typically coincides with asset completion, at which point the asset should also begin contributing revenue and operating cash flow. Looking at capitalised interest in isolation, without considering the corresponding operating contribution, can therefore be misleading.

Finally, the key test is not whether capitalisation is “allowed”, but whether operating cash flow and interest coverage remain healthy after assets are commissioned. If operating cash flow continues to cover actual financing costs comfortably, then the earnings profile is being smoothed by the construction cycle rather than artificially inflated.

I agree this is an area investors should continue to monitor, particularly the trend in capital work-in-progress, commissioning of assets, and post-completion cash flow contribution.

Damn Borrowing cost capitalisation is based on standard of Accounting, Not abnormally high borrowing cost only can be capitalise, among all Qualify asset under MFRS 123 standards all borrowing cost also required to capitalise. Not you go capitalise borrowing cost = company got problem (you cant choose to expense off in P&L), its main purpose is bring the assets ready to use or sell in future.

Your concern is high interest capitalise to asset = overstated the Profit and bring it off Balance sheet.

Same as the person who earn high income but he did not show you how much they actual spend monthly.

Your mind is keep focus on the profit for the particular personnel. Profit cant show you the full picture, you required to seen the personal have “positive cash flow”every month only show the actual wealth of that person.

Focus on “Cash flow” Not “Profit”. Enough human mou?

就不要复杂想。公共建设原本就是重资本行业, 但也是国家刚需, that‘s why财政部会津贴。巴士, 火车, 高铁, 地铁, 轻轨都是公共基建。通常公共基建都需要发债或政府津贴来支持。原因可以上网查, 长话短说。

如果单单只是跑巴士, 谁都能做, 大企业比如YTL买100辆巴士, 做几个app, 拿执照, 计划1,2年就开工了, 长跑长做 短跑短做。单单跑巴士, 门槛不高。

单单跑巴士 对于基建来说并不完善, 而是需要长期管理车站的公司。虽然长期管理看似沉闷, 但也是城市规划很重要的一环。

纯属新闻和教科书看多了, 想自己温习温习。

马来西亚现在是比较注重火车轨道建设。建设成本高, GDP也高, 政府会比较重视, 人民看得到政绩。但火车轨道通常都是大型公司承包, 现在蛮多是中国企业。

我个人是觉得可以承包给中国企业, 但必须做到技术转移, 政府必须规定中国企业把技术传授给本地企业和本地人, 而不是单方面一直让外国承包工程赚钱。也明白 4年要做出政绩也是有压力。可是这些都是mega project啊, 很有肉。

纯属吹水。

@Cheng you found out the Annual report 2024 Ptrans Capitalise the interest of the Sukuk was Abnormally high:

I not sure how you calculate, now i will show the Annual Report 2024 with the data and pages to show the actual (everyone can check yourself):

1. Note 11 (d) Capitalisation of borrowing costs (pg136)

Included in additions of the Group during the financial year are capitalised borrowing costs amounting to RM17,288,517
(2023: RM12,480,448) as disclosed in Note 8.

2. Note 8 Finance Cost (Pg129)

Sukuk Murabahah Gross Interest was RM23,729,514 expense off in P&L (5.54%: RM23,729,514/Sukuk Murabahah RM428,500,000 Note 27 pg 151).

Sukuk Wakalah Gross Interest was RM3,836,960 expense off in P&L (1.28%: RM3,836,960 Sukuk wakalah RM300,000,000 Note 27 Pg151).

Capitalised to property, plant and equipment RM17,288,517 (5.76%: RM17,288,517/Sukuk wakalah RM300,000,000 Note 27 Pg151).

3. Note 27 Borrowing (Pg 151) show the Sukuk murabahah RM428,500,000 and Sukuk wakalah RM300,000,000 in Year 2024.

At the end of the reporting period, the effective profit/interest rates per annum of the borrowings are as follows:

Sukuk = 5.14% in Year 2024. (i didn't see any big or significant differences)

4. Statement of Cash Flow (Pg 112) Show that in Cash flows from financing activities "Finance cost paid = (RM30,893,388)" which this have been paid following the Note 8 Pg129 "expense off + Capitalise". And the end of the Cash flow statement show "Net increase in cash and cash equivalents RM192,889,241" Which The Totals Finance Cost paid RM30,893,388/RM192,889,241" = 16% out of current year generated Free Cash Flow; equivalent current year generated Free Cash Flow can paid 6.2 Years of the Finance cost.

chillax, kar kay low. please dont get emotional and its just sharing opinions in public forum; nothing personal and just different perspectives if you will. If my opinions irritate you, please use mute option in this app to mute my responses :) Thanks for pulling out the data and again, its just different perspectives yeah. Total interest from both sukuk is approx ~ 27.5 mil and coupled with non-sukuk interest giving it a total of ~31 mil. Of this 31 mil, 17 mil was capitalised while 14 mil was expensed to p&l; 13.6 mil to be exact expensed as finance cost in the p&l. 17 mil out of 31 mil is slightly more than 50% capitalisation rate. I am using total interest as the denominator to determine how much interest was capitalised and you are using total sukuk amount as the denominator. I will not go further for cash flow as its also different perspectives. I am seeing negative free cash flow and you are seeing 192mil positive free cash flow. All is well as long as you are happy :)

@cheng don’t so fast judge my sharing data fact check in public forum define as emotional action first :) you are good investor who have actual looking in the deep of the company fundamental compare to other.

Since i know your calculation basis was using the total interest as the denominator, i feeling well now to maintain my own view of perspective, 50%+ capitalise its just show the 50%+ of the asset was under qualifying of MFRS123 Borrowing Cost.

We are not wrong but just different perspective.
Its fine you can sharing anything in public forum as long as you happy :)