CREDIT ANALYSIS REPORT

MALAKOFF POWER BERHAD - 2019

Report ID 60475 Popularity 1413 views 91 downloads 
Report Date Mar 2020 Product  
Company / Issuer Malakoff Power Bhd Sector Infrastructure & Utilities - Power
Price (RM)
Normal: RM500.00        
  Add to Cart
Rationale
MARC has affirmed its AA-IS rating on Malakoff Power Berhad’s (MPower) RM5.4 billion Sukuk Murabahah with a stable outlook. MPower is the operations and maintenance (O&M) operator of its parent company Malakoff Corporation Berhad’s (Malakoff) majority-owned domestic power plants. As at end-December 2019, the sukuk has an outstanding amount of RM3.34 billion. 

The rating reflects the consolidated credit profile of MPower and Malakoff in light of the strong operational and financial linkages between both entities. The significant linkages are based on common reliance on the residual cash flows of Malakoff’s power plants and the explicit Kafalah guarantee provided by Malakoff in favour of the sukukholders. The rating is supported by the predictability of cash flows from Malakoff’s power plant portfolio under long-term power purchase agreements (PPA) with Tenaga Nasional Berhad (TNB) (AAA/Stable). Constraining the rating is the group’s high reliance on residual cash flows from key subsidiaries, Tanjung Bin Power Sdn Bhd (TBP) and Segari Energy Ventures Sdn Bhd (SEV). 

During 2019, Malakoff’s revenue from continuing operations (excluding Macarthur wind farm) increased 1.3% y-o-y to RM7,278.5 million mainly due to higher energy payments from SEV in line with its increased dispatch factor and higher capacity payments from Tanjung Bin Energy Sdn Bhd (TBE) following a shorter unplanned outage duration. However, pre-tax profit decreased 2.2% to RM479.5 million mainly due to investment impairments on an associate company, Kapar Energy Ventures Sdn Bhd. 

In 2019, Malakoff’s cash flow from operations (CFO) increased to RM2.2 billion (2018: RM2.0 billion) in line with higher revenue. Malakoff Group’s leverage position improved to 1.86x due to repayment of borrowings and the deconsolidation of project debt amounting to RM1.36 billion post-disposal of the Macarthur wind farm. The leverage is expected to improve further as MPower continues to repay its scheduled sukuk obligations while the groups does not have major debt-funded capex in the near term.

The disposal of Macarthur wind farm will affect Malakoff’s profitability in view of the wind farm’s significant earnings contribution to the group. Prior to the disposal of Macarthur in December 2019, the operation constituted 12.0% of the group’s profit in 2019. The acquisition of Alam Flora and an additional 12.0% equity stake in Shuaibah, which were completed in 2H2019, will moderate the loss in earnings from the Macarthur disposal, the expiry of the Port Dickson power plant’s PPA, and the step-down in TBP’s capacity rate financial (CRF) in 2H2019. 

The stable outlook incorporates MARC’s expectation that Malakoff’s power generating subsidiaries will continue to deliver satisfactory operational and financial performance. 

Major Rating Factors

Strengths
Predictable cash flow generation from various repayment sources;
Strong operational track record of Malakoff Group; and
Sound covenants to ensure adequate liquidity coverage.

Challenges/Risks
High reliance on cash flows from two key subsidiaries; and
Malakoff Group’s low equity base.


Related