CREDIT ANALYSIS REPORT

CERAH SAMA SDN BHD - 2021

Report ID 60538900454 Popularity 66 views 11 downloads 
Report Date Dec 2021 Product  
Company / Issuer Cerah Sama Sdn Bhd Sector Infrastructure & Utilities - Toll Road
Price (RM)
Normal: RM500.00        
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Rationale
Rating action     
MARC has affirmed its AA-IS  rating on Cerah Sama Sdn Bhd’s RM420.0 million Sukuk with a stable outlook. Cerah Sama is the investment holding company of Grand Saga Sdn Bhd, the concessionaire of the 11.5-km Cheras-Kajang Highway.

Rationale     
The rating is premised on Cerah Sama’s resilient cash flows and stable revenue base, underpinned by steady traffic performance on the mature Cheras-Kajang Highway that has been operational since 1999. Strong cash reserves and an accommodative sukuk repayment structure further support the rating. However, these strengths are partly offset by Cerah Sama’s leveraged capital structure. 

The affirmation also incorporates the company’s recent and projected financial performance that have been in line with our expectations. Cerah Sama has had stable financial performance but it was somewhat affected in 2020 due to the pandemic. Cheras-Kajang Highway’s traffic performance through the pandemic has been typical of that for toll roads in MARC’s rating universe. Coronavirus-induced mobility restrictions have impacted toll road traffic in 2020 with average daily traffic (ADT) declining 19.8% to 118,838 vehicles for Cheras-Kajang Highway in 2020 from 2019. We had, nevertheless, anticipated a decline in traffic volume of 15%-20% in 2020. The impact to operating cash flow (CFO) — a reduction to RM41.3 million in 2020 from RM54.1 million in 2019 — was also broadly in line with our previous expectation of CFO falling in the RM36 million to RM42 million range.

Traffic remains some way off pre-pandemic levels, at roughly 65% of 2019 levels through the first eight months of 2021. With the depth and duration of the pandemic still uncertain, the operating environment for Cerah Sama — and toll operators in general — will likely remain challenging at least over the near term, in our view. That said, assuming a full recovery in 4Q2021, we estimate traffic levels for full year 2021 to still be below 2019 levels by some 25%–30%. Notwithstanding this, we anticipate Cerah Sama’s 2021 top line to improve, ending the year with a revenue of around RM100 million to RM110 million, supported by toll compensation from the government for no toll increase in 2020. 

Based on the Concession Agreement (CA), the highway was slated to see a toll rate increase for all classes of vehicles in 2020. No toll rate increases were implemented then, but Grand Saga had received RM43.7 million from the government as compensation for the 2020 hike deferral on July 21, 2021. We expect traffic to slowly return to normal, likely from 2023 as travel restrictions ease, and revenue to be in the RM115 million to RM130 million range per year over 2022–2025 on normalised operations, supported by toll compensation. 

Meanwhile, the company maintains a relatively strong liquidity position, supported by RM84.45 million of cash and cash equivalents as at August 31, 2021. This should be sufficient to meet the sukuk’s RM30.0 million principal repayment due on January 31, 2022. 

For a matured highway asset, Cerah Sama’s leverage remains moderately high with a debt-to-equity (DE) ratio of 4.2x as at 1H2021 (2020: 4.1x), largely on account of high dividend distribution. It paid RM32.0 million in dividends each in 2019 and 2020, and expects to distribute another RM40 million in 2021.

Under the base case forecasts, minimum and average pre-distribution financial service cover ratios (FSCR) with cash balance are projected at 1.9x and 2.8x over 2021–2030, above the covenanted FSCR of 1.75x. Under our sensitised case assuming 2022 traffic at 90% of the 2019 level, minimum FSCR is projected to still stay above the covenant, albeit narrower at about 1.8x. Assuming a one-year delay in the payment of toll compensation, however, could have a more significant impact on the FSCR. Prudent dividend upstreaming becomes increasingly important in this regard.

Rating outlook     
The stable outlook reflects our assessment that Cerah Sama will be able to generate sufficient cash flow and maintain healthy cash levels to meet its financial obligations. We also expect the company to exercise discipline on dividend distributions, ensuring its liquidity and leverage metrics are not compromised. 

Rating trajectory

Upside scenario     
A rating upgrade is not expected in the near term given a still challenging operating environment as downside risks related to the pandemic remain.

Downside scenario     
The rating may be pressured if there is a sustained deterioration to the company’s financial metrics, which could arise, inter alia, from aggressive dividend flow and a weakening of management’s commitment to maintain the FSCR at a level meeting the financial covenant, or a material degradation of traffic and revenue expectations.

Key strengths
Steady performance from mature asset, Cheras-Kajang Highway
Undemanding repayment schedule 
Low operational risk
Key risk
Moderately high leveraged capital structure




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