CREDIT ANALYSIS REPORT

LEADER ENERGY SDN BHD - 2021

Report ID 60538900364 Popularity 648 views 58 downloads 
Report Date Oct 2021 Product  
Company / Issuer Leader Energy Sdn Bhd Sector Infrastructure & Utilities - Solar
Price (RM)
Normal: RM500.00        
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Rationale
Rating action     
MARC has affirmed its AA-IS rating on Leader Energy Sdn Bhd’s outstanding ASEAN Green Sustainable and Responsible Investment (SRI) Sukuk Wakalah of RM255.0 million. The rating outlook is stable. Leader Energy is the investment holding company of two solar power project companies with solar power projects in Kuala Muda, Kedah. The solar power plants have a combined capacity of 49MW.

Rationale     
The rating affirmation reflects the strength of the 21-year Power Purchase Agreement (PPA) between Leader Energy’s two solar power project companies and the offtaker Tenaga Nasional Berhad (TNB, AAA/Stable). The energy generated by the solar power plants will be purchased by TNB at certain tariffs. As such, demand risk is mitigated. The rating also incorporates Leader Energy’s track record of energy generation that is broadly in line with forecasts.

In 1H2021, Leader Solar Energy Sdn Bhd’s (LSE I) energy production continued its good performance, exceeding P90 estimates by 12.4%. Previously in 2020, LSE I had exceeded P90 forecasts by 7.2%. The better performance was due to good weather conditions. In regard to Leader Solar Energy II Sdn Bhd (LSE II), its actual energy production was 2.1% lower than P90 estimates due to forced outages of about 11 days in 1H2021. The outages were caused by damaged underground cables from unrelated construction work near LSE II. The damaged underground cables have been replaced and the repair cost as well as the loss of revenue of RM0.8 million is being claimed from the third party undertaking the construction work.

In 1H2021, the total revenue for LSE I and LSE II was RM20.0 million, accounting for 56.8% of projected total revenue of RM35.2 million for 2021. Accordingly, cash flow from operations (CFO) was healthy at RM16.3 million in 1H2021. Based on cash flow projections, Leader Energy’s minimum and average finance service cover ratios (FSCR) would stand at 2.70x and 3.30x. The projected cash flow can withstand stress scenarios of lower energy generation, high plant outage and increased operating cost.

Rating outlook     
The stable outlook reflects MARC’s expectation that the project companies’ power plants will maintain good operational metrics and generate stable income streams to meet the financial obligations under the rated programme. 

Rating trajectory

Upside scenario     
We do not envisage a rating upgrade in the near term. The rating could be improved if the plants demonstrate a consistent track record of strong operating performance as well as build up and maintain a healthy liquidity buffer.

Downward scenario     
Downward pressure on the rating could occur if the plants experience operational issues that significantly impact energy generation and debt service coverage metrics.

Key strengths
Demand risk mitigated by PPA terms 
Predictable energy generation from solar power plants

Key risks
Variability of solar resource
Plant performance risk
 

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