RAM Ratings affirms Tadau Energy’s AA3/Stable SRI sukuk rating

Published on 13 Sep 2023.

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RAM Ratings has affirmed the AA3/Stable rating of Tadau Energy Sdn Bhd’s (Tadau or the Company) RM250 mil SRI Sukuk Programme (2017/2033) (the Sukuk). 

The rating is premised on the sound operational performance of Tadau’s two solar photovoltaic plants in Kudat, Sabah, with nominal capacities of 2 MWac and 48 MWac, respectively (collectively, the Plants). The Plants supply electricity to Sabah Electricity Sdn Bhd (SESB) under two power purchase agreements. 

In 2022, the Plants’ energy production surpassed our sensitised projection and the combined declared annual quantity (DAQ) – the forecast provided to SESB at the start of each year – by a marginal 2.9% and 0.2%, respectively. The Plants’ energy output for 5M 2023 stayed above our projection, although it was 5.7% lower than the estimated DAQ for that period – skewed by seasonally lower solar irradiance. We expect the Plants to meet the DAQ and exceed our projected numbers for 2023. Except for February and May 2023, the Plants’ availability surpassed 99% every month during the review period.

Tadau’s top line for FY Jun 2022 improved from the previous year owing to generally higher irradiance. This trend continued into FY Jun 2023, with the annualised 10-month revenue rising 1.0% y-o-y. A lower finance cost coupled with higher income from permitted investments pushed pre-tax profit for FY Jun 2022 up to RM13.5 mil (FY Jun 2021: RM9.8 mil). With 10M fiscal 2023’s pre-tax profit already at RM11.8 mil, Tadau’s full-year profit is likely to outperform fiscal 2022’s, assuming the better irradiance and sound plant operations continue.

Tadau made a dividend payout of RM5.5 mil in FY Jun 2023 (FY Jun 2022: RM29.4 mil). Our sensitised cashflow analysis estimates respective minimum and average annual finance service coverage ratios of 1.50 times and 2.44 times over the Sukuk’s remaining tenure, provided the Company maintains prudence in future distributions.

Like other solar plants, Tadau’s Kudat plants are exposed to solar irradiance variability and performance risks. While the Plants’ energy output exceeded our expectations since their commercial operations dates, diligent operations and maintenance are still key to ensuring satisfactory long-term performance. Single-project and regulatory risks remain despite the federal government’s supportive stance on renewable energy projects. 

Analytical contacts
L Nurisya Abdullah
(603) 3385 2492

Chong Van Nee, CFA
(603) 3385 2482

Media contact
Sakinah Arifin
(603) 3385 2500

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2023 by RAM Rating Services Berhad

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