TNB POWER GENERATION SDN BHD - 2023 |
||||||||
| Report ID | 60538900469671 | Popularity | 189 views 80 downloads | |||||
| Report Date | Dec 2023 | Product | ||||||
| Company / Issuer | TNB Power Generation Sdn Bhd | Sector | Infrastructure & Utilities - Power | |||||
| Price (RM) |
|
|||||||
| Rationale |
Rating action MARC Ratings has affirmed its AAAIS rating on TNB Power Generation Sdn Bhd’s (TPGSB) Sukuk Wakalah Programme of up to RM10.0 billion with a stable outlook. As at end-November 2023, the outstanding amount under the programme stood at RM3.5 billion. Rationale TPGSB is a wholly-owned energy generation arm of Tenaga Nasional Berhad (TNB). It owns and operates 12 power plants and manages three power plants belonging to TNB with a total generation capacity of 15,675MW as at end-September 2023. TPGSB’s credit strength reflects its sizeable 56.9% share of generation capacity in Peninsular Malaysia and its predictable earnings from long-term power purchase agreements (PPA) its power plant operators have with TNB. Except for two hydro plants, the PPAs provide for availability-based payments which mitigate demand risk. Provisions in the PPAs also allow for fuel cost pass-through subject to the power plants meeting the PPAs’ operational performance requirements. Based on the significant financial and operational linkages between the entities, MARC Ratings has equalised TPGSB’s rating to TNB’s AAA/Stable rating. TNB’s rating incorporates a two-notch uplift premised on the rating agency’s assessment of a very high likelihood of government support to the TNB group, given its strategic role in energy generation, transmission, and distribution for the Malaysian economy. TPGSB’s revenue in 1H2023 increased by 14.4% to RM12.0 billion (1H2022: RM10.5 billion) on the back of loftier energy payments (EP) from higher fuel prices. However, operating profit margin contracted to 5.51% in 1H2023 (1H2022: 14.57%), driven by the negative variance between its average coal cost and the applicable coal price (ACP) used in EP calculations. The negative variance in the interim 1H2023 was because of a steep decline in coal prices. Coal prices have, nevertheless, been relatively stable since July 2023, alleviating concerns of further adverse fuel margin impact on profitability. Revenue is projected to marginally decline by 2.2% annually through 2026 with the expiry of three PPAs (with 962MW generation capacity) but the commencement of operations of the Nenggiri hydro power plant in Kelantan in 2027 is expected to contribute to revenue growth thereafter. Cash flow from operations (CFO) in 1H2023 stood at RM1.47 billion (1H2022: RM1.45 billion), providing 1.96x cover on interest. Free cash flow (FCF) generation remained healthy at RM1.1 billion after capex of RM405.3 million. However, higher projected capex of between RM2.3 billion and RM2.9 billion a year over 2024-2026 could trim FCF going forward; the capex largely relates to the Nenggiri hydro power plant (estimated cost: RM5.0 billion) and refurbishment of five hydro power plants in Sungai Perak (estimated cost: RM5.8 billion). Total borrowings stood at RM23.4 billion with a debt-to-equity (DE) ratio of 1.51x as at end-June 2023. TPGSB’s borrowings are projected to increase to around RM24.9 billion in the next three years, mainly to fund the development of the ongoing hydro projects. Notwithstanding this, the projects are earnings accretive and the cash flows are expected to be sufficient to cover the borrowings. Rating outlook The stable outlook reflects our expectations that TPGSB will broadly maintain its credit metrics, underpinned by implicit support from parent TNB. Rating trajectory Upside scenario Although a rating upgrade to TPGSB’s standalone rating is not anticipated in the near term, solid improvements in revenue and cash flow metrics on a sustained basis would be credit positive. Downside scenario Downside rating pressure could occur in the event of any change in TPGSB’s strategic role as the principal energy provider and/or if there is a substantial weakening in cash flow or liquidity position. Key strengths
Key challenges
|
|||||||
| Related | ||||||||
