CERAH SAMA SDN BHD - 2016

MARC has affirmed its rating of AA-_IS on Cerah Sama Sdn Bhd’s (Cerah Sama) RM420.0 million sukuk with a stable outlook. Cerah Sama is the investment holding company of Grand Saga Sdn Bhd (Grand Saga), the concessionaire of the 11.5-kilometre Cheras-Kajang Highway. Cerah Sama also serves as an investment vehicle of its major shareholders, Taliworks Corporation Berhad and Employees Provident Fund (EPF), for potential brownfield toll assets in Malaysia and overseas.

The affirmed rating considers the highway’s strong operational track record and its resilient traffic performance against a recent toll hike. The rating also takes into account Cerah Sama’s satisfactory financial position and coverage ratios. Factors constraining the rating include an increased repayment risk associated with a weakening leverage position and the potential impact on traffic volume from the Klang Valley Mass Rapid Transit (MRT) project.

Traffic volume on the Cheras-Kajang Highway picked up in 2015, reversing yearly declines since the commencement of MRT works in 2012. The completion of the majority of groundworks along the affected stretches of the highway in 1H2015 has helped alleviate peak-hour congestion due to less frequent lane closures. The recent toll hike increases in October 2015 have seen its overall daily traffic volume decline by less than 2% in the first two weeks, reflecting the inelastic nature of the Cheras-Kajang Highway. MARC expects the highway’s traffic to fully recover from the toll increases and achieve the targeted traffic performance growth of 1% in 2016. For the first ten months of 2015 (10M2015), the average daily traffic volume of the Batu 9 and Batu 11 toll plazas recorded year-on-year (y-o-y) growth of 2.1% and 5.6% respectively. In line with the traffic growth, Cerah Sama’s toll revenue collection for the same period increased by 4.2% y-o-y to RM50.2 million (10M2014: RM48.2 million).

Notwithstanding the improved operations, the company has distributed a sizeable dividend payout of RM148.0 million in 10M2015 (2014: RM10.0 million, 2013: nil, 2012: nil); resulting in a debt-to-equity (DE) ratio and short-term liquidity position of 3.89 times and RM96.2 million (10M2014: 1.76 times; RM160.0 million) respectively. Based on the latest cash flow projection, the company plans to distribute on average RM42.8 million in the next five years which would result in its DE ratio moving closer to the covenanted level of 4.50 times. Moderating MARC’s concern is Cerah Sama’s liquidity buffer indicated by the post-distribution finance service coverage ratio ranging from 2.17 to 6.08 times. MARC’s sensitivity analysis demonstrates that Cerah Sama’s cash flow is able to withstand a moderate traffic underperformance (annual traffic volume of 7% below projections) as well as a toll hike deferral.

The stable outlook incorporates MARC’s expectation of a stable traffic profile for the Cheras-Kajang Highway and the timely receipt of the government compensation. MARC also expects Cerah Sama and its subsidiaries to maintain a prudent approach to financial management with regard to acquisitions and expansion. Downward pressure on the ratings and/or outlook may result if Cerah Sama’s credit profile changes materially in the event of a sizeable business acquisition or a severe traffic underperformance on the Cheras-Kajang Highway.

Major Rating Factors

Strengths

• Matured highway with stable traffic profile;
• Minimal operation risk due to nature of highway operations; and
• Undemanding repayment schedule.

Challenges/Risks

• Risk of lower traffic growth from the impact of MRT operations;
• Weakening leverage position; and
• Potential acquisitions may shift credit profile.