CREDIT ANALYSIS REPORT

GAS DISTRICT COOLING (PUTRAJAYA) SDN BHD - 2021

Report ID 60538900355 Popularity 55 views 5 downloads 
Report Date Oct 2021 Product  
Company / Issuer Gas District Cooling (Putrajaya) Sdn Bhd Sector Infrastructure & Utilities - Gas District Cooling
Price (RM)
Normal: RM500.00        
  Add to Cart
Rationale
Rating action     
MARC has affirmed its AAAIS rating on Gas District Cooling (Putrajaya) Sdn Bhd’s (GDC Putrajaya) RM300 million Al-Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS) with a stable outlook. The current outstanding of RM50 million BaIDS is payable on December 2, 2022.

Rationale     
GDC Putrajaya’s standalone credit profile is strong. Business risk is low given its monopolistic position as a provider of an essential utility within Putrajaya under long-term offtake agreements. GDC Putrajaya’s revenue is predominantly recurring, with approximately 75% of revenue in 1H2021 derived from the take-or-pay demand charges. These characteristics, combined with its long operational history with strong counterparties provide significant operating stability and strong cash flow visibility. As the government accounts for about two-thirds of GDC Putrajaya’s business, contract renewal risk is deemed low. The company’s credit profile also benefits from its conservative capital structure debt-to-equity (DE ratio: 0.11x at end-June 2021) and strong liquidity position (net cash). However, a key moderating factor is the absence of a gas and utility full cost pass-through mechanism in the government offtake agreements that could pressure margins.

The rating incorporates a three-notch uplift for parental support from Putrajaya Holdings Berhad (PJH), which carries a rating of AAA/stable from MARC. The support assessment considers GDC Putrajaya as a strategic 100%-owned subsidiary of PJH.

We note that the outbreak of the coronavirus has not had a material impact on GDC Putrajaya. Overall demand patterns have remained resilient, with consumption volume in 2020 declining only slightly by 2.4% y-o-y to 176.6 million refrigeration tonnage hours (RTh). In 1H2021, the company supplied 82.9 million RTh of chilled water, largely unchanged compared to the 83.2 million RTh it delivered in the same period the previous year. Revenue rose by 8.8% y-o-y and operating profit before interest and tax (OPBIT) by 55% y-o-y in 2020 on the back of a 9% increase in tariff from January 1, 2020. Revenue and profitability levels remained favourable in 1H2021, with steady revenue and a wider operating profit margin of close to 39% due to cheaper dry gas (lesser by approximately 27% y-o-y). We expect flat to low single-digit revenue growth for the full year 2021. However, operating margin is likely to moderate in 2H2021 vis-à-vis 1H2021 on expected higher input costs (dry gas), although broader overall relative to 2020.

Rating outlook     
The stable outlook reflects our expectation that GDC Putrajaya will continue to maintain solid business fundamentals and sustain its strong credit metrics. We also expect parental support to be forthcoming should the need arise. 

Rating trajectory

Upside scenario     
Not applicable as the rating is already at the highest level on MARC's scale.

Downside scenario     
Pressure on the rating could arise from a negative rating action on PJH.

Key strengths
  • Strong support from parent Putrajaya Holdings Berhad
  • Sole supplier of chilled water in Putrajaya
  • Contracted demand charges cover fixed operating and financing costs
  • Conservative capital structure and adequate liquidity position
Key challenge/risk
  • Absence of full cost pass-through mechanism in government offtake agreements

Related