Published on 15 Nov 2022.
RAM Ratings has reaffirmed Cenergi SEA Berhad’s (Cenergi or the Group) A1/Stable/P1 corporate credit ratings, along with the A1/Stable rating of the Senior Sukuk and A3/Stable rating of the Subordinated Perpetual Sukuk under its RM1.5 bil Senior Sukuk/Subordinated Perpetual Sukuk Programme (2021/2121). The Subordinated Perpetual Sukuk is rated two notches below the Senior Sukuk to reflect increased loss severity and the risk of non-performance relative to senior financing obligations.
Cenergi is a domestic-focused integrated renewable energy (RE) player, specialising in the production of palm oil mill effluent (POME) biogas power. Based on RAM’s rating methodology for government-linked entities, Cenergi is deemed to benefit from a moderate likelihood of extraordinary support from Khazanah Nasional Berhad (Khazanah), which owns a 93% stake in the Group. Our view is underlined by the Group’s important role as Khazanah’s only sustainable energy arm and its strong relationship with the latter. Khazanah reiterated its support in a recent interaction with us.
The ratings are reflective of Cenergi’s growing concession-based biogas business. The Group is the biggest grid-connected POME biogas provider under Malaysia’s Feed-in-Tariff scheme, holding a 13.9% market share (34.4 MW capacity) as at mid-September 2022. Its power projects are backed by long-term RE power purchase agreements with Tenaga Nasional Berhad, the offtaker. These contracts afford attractive tariffs and priority of despatch, imposing no cash penalties for completion delays or underperformance. We view the Group’s operational performance as satisfactory, emphasising its strong execution capability.
Cenergi’s solar division also showed good traction, delivering six rooftop solar projects year to date, with another five underway. The Group has acquired an 8 MW greenfield solar farm which won a bid to participate in the New Enhanced Dispatch Arrangement – a platform for power players to sell electricity at market rate. We caution that the underlying price risk must be addressed to prevent earnings and cashflow volatility. Meanwhile, Cenergi’s energy efficiency and biomass pellet operations stand to benefit from supportive government policies geared towards a carbon-neutral economy.
The ratings are moderated by Cenergi’s small business scale and financial footing. The performance of its biogas plants is limited by the volatility of feedstock supply inherent in the sector, while growth is capped by the nation’s regulated RE quota. The Group’s aggressive debt-funded expansion could also jeopardise its financial profile.
Cenergi turned around in FY Dec 2021 to post a pre-tax profit of RM1.28 mil, thanks to stronger revenue and a leaner operating cost (FY Dec 2020: RM5.69 mil loss). In 1H fiscal 2022, however, the Group again registered a pre-tax loss, amounting to RM4.16 mil, mainly owing to a softer top line alongside heftier depreciation and finance charges. Excluding lumpy non-cash construction revenue, the Group’s operating revenue would have trended up, reflecting its growing portfolio of projects.
Our stressed cashflow projection, which assumes smaller project wins, delays in project completion and lower electricity output, indicates that the Group will sustain losses until FY Dec 2023. Strengthening operating cashflow as more projects come online should help fund expansions and moderate debt utilisation. We expect funds from operations debt coverage and gearing for fiscal 2023-2025 to average a respective 0.15 times and 1.35 times – both levels are supportive of the Group’s ratings.
Chu Jia Ying
(603) 3385 2519
Chong Van Nee, CFA
(603) 3385 2582
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Ratings on Cenergi SEA Berhad