CERAH SAMA SDN BHD - 2019

MARC has affirmed its rating of AA-_IS on Cerah Sama Sdn Bhd’s RM420.0 million sukuk. Concurrently, the rating outlook has been revised to stable from negative. Cerah Sama is the investment holding company of Grand Saga Sdn Bhd, the concessionaire of the 11.5-km Cheras-Kajang Highway.

The rating affirmation incorporates Cheras-Kajang Highway’s steady traffic performance that remains supportive of Cerah Sama’s cash flow generation, its adequate cash balances as well as the accommodative sukuk repayment profile. The rating outlook revision to stable reflects MARC’s assessment of the concessionaire’s ability to generate sufficient cash flow and maintain cash balances to address its financial obligations despite the uncertain regulatory direction of the domestic toll industry.

Cheras-Kajang Highway recorded an aggregate average daily traffic (ADT) increase of 2.9% y-o-y to 145,177 vehicles for 9M2018 despite the commencement of Phase 2 of the KVMRT Line 1. The anticipated traffic decline during the initial ramp-up period of Phase 2 of the KVMRT Line 1 operations did not occur as revealed by monthly traffic analysis where traffic at the Batu 9 and Batu 11 toll plazas matched pre-MRT operations by March 2018 (Batu 9) and July 2018 (Batu 11). The ADT on Cheras-Kajang Highway surpassed its forecast in 9M2018 with the actual traffic at Batu 9 and Batu 11 outpacing their projections.

In 9M2018, Cerah Sama’s toll revenue grew 1.6% y-o-y to RM64.8 million. Operating profit before interest and tax (OPBIT) margin and OPBIT interest coverage rose to 61.4% and 2.53x (9M2017: 57.3%; 2.32x) on the back of lower operating cost. Cash flow from operations (CFO) remained flat y-o-y while free cash flow (FCF) declined to RM13.0 million (as at end-September 30, 2017: RM23.4 million). Its short-term liquid assets of RM105.6 million provide an additional buffer against any temporary traffic underperformance or in the event of aggressive shareholders’ distribution. For a matured highway asset, Cerah Sama’s leverage remains moderately high, albeit reporting an improved debt-to-equity (DE) ratio of 3.81x in 2017 (2016: 3.94x).

The base case projections show minimum and average pre-distribution financial service cover ratios (FSCR) with cash balance of 2.29x and 3.11x until sukuk maturity. The projections demonstrate moderate resilience to traffic growth and operating cost increase. Any severe traffic growth reductions are deemed unlikely given the maturity of Cheras-Kajang Highway and continued population growth in townships and commercial centres in Cheras and Balakong. The 2020 toll hike deferral scenario would weigh the most on Cerah Sama’s debt servicing ability in 2022 when cash flow coverage is at its weakest as the toll concessionaire has factored in an average annual distribution of RM47.8 million from 2018 to 2021. In this regard, MARC expects Cerah Sama to exercise discipline on its dividend distribution policy such that the company’s liquidity and leverage metrics are not compromised.

Major Rating Factors

Strengths

• Strategic alignment supports traffic flow;
• Undemanding repayment schedule; and
• Low operational risk.

Challenges/Risks

• Moderately high leveraged capital structure;
• Competing alternatives such as public transport systems; and
• Potential acquisitions may shift credit profile.