CREDIT ANALYSIS REPORT

SEGI ASTANA SDN BHD - 2019

Report ID 60436 Popularity 515 views 23 downloads 
Report Date Jan 2020 Product  
Company / Issuer Segi Astana Sdn Bhd Sector Property
Price (RM)
Normal: RM500.00        
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Rationale
MARC has affirmed its AA- rating on Segi Astana Sdn Bhd’s RM415.0 million ASEAN Green Medium-Term Notes facility (MTN facility). The outlook is revised to stable from negative. Segi Astana’s rating and the outlook mirror its parent WCT Holdings’ senior debt ratings of AA- with stable outlook which was revised from negative on August 28, 2019. This assessment is based on an undertaking from WCT Holdings to provide a shareholder’s advance or obtain an unconditional bank guarantee for the outstanding RM135.0 million under the MTN in the final year of the facility in 2028 if a planned refinancing for the amount is not in place. 

Segi Astana’s standalone rating is A+ but its outlook was revised to positive from stable on improved performance arising mainly from higher occupancy rate and increased net lettable area (NLA) of its gateway@klia2 mall. MARC could consider upgrading the standalone rating if there is evidence that the occupancy level would remain robust at above 85% and Segi Astana would maintain healthy cash balances by managing dividend distribution such that the refinancing risk at the tail end is substantially reduced. 

Segi Astana is a 70:30 joint venture between WCT Land Sdn Bhd (WCTL), a wholly-owned subsidiary of WCT Holdings and Malaysia Airports Holdings Bhd (MAHB), a government-linked entity. Segi Astana operates the integrated complex (mall, carpark and transportation hub) at Kuala Lumpur International Airport 2 (klia2) under a build-operate-transfer (BOT) concession expiring in 2047, revised from 2037 earlier, after a 10-year extension was granted by MAHB. The occupancy rate grew to 92.8% as at 1H2019, up from 78.2% in 2014. The higher occupancy rate is on a larger NLA of 384,047 sq ft following asset enhancement initiatives the company undertook. The average rental rate fell slightly to RM19.59 psf as at end-2018 due to the larger NLA (2017: RM20.20 psf). 

Tenancy renewal risk at the mall is mitigated by diversified tenancy profiles and tenants of which an airport hotel operator occupies the largest tenanted area of about 11% of the NLA as at end-1H2019. About 95% of the tenants have a three-year lease agreement with the bulk of the rental rates for the existing tenants due for renewal in 2020 of which about 50% has confirmed their renewal. Demand for retail space remains strong, supported by the steady increase in passenger traffic volume, which grew by 5.3% y-o-y to 31.9 million at klia2. 

Segi Astana recorded a 4.6% y-o-y revenue increase to RM127.2 million and 26.3% y-o-y increase in pre-tax profit to RM42.4 million in 2018, largely due to higher occupancy and lower financing costs. Total collection from carpark, transportation hub and promotion income has remained steady at RM56.4 million. For 1H2019, revenue  stood  at  RM66.8 million  and pre-tax profit  at  RM26.5 million. At  current occupancy rate and rental rates, DSCR throughout the tenure of the sukuk would average at 5.79x. In MARC’s sensitivity analysis where rental rates are maintained at current levels, occupancy rate would have to decline to 73.4% from 2020 onwards before DSCR falls to its post distribution covenant of 1.75x.

Major Rating Factors

Strengths
Improving occupancy rate;
Benefit from increased passenger footfalls at KLIA2; and
Steady cash flow from lease rentals and carpark payments.

Challenges/Risks
Lease renewal risk; and
Susceptibility to passenger traffic volume.
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