CREDIT ANALYSIS REPORT

LEADER ENERGY SDN BHD - 2022

Report ID 6053890046878 Popularity 493 views 64 downloads 
Report Date Aug 2022 Product  
Company / Issuer Leader Energy Sdn Bhd Sector Infrastructure & Utilities - Solar
Price (RM)
Normal: RM500.00        
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Rationale
Rating action     
MARC Ratings has affirmed its AA-IS rating on Leader Energy Sdn Bhd’s outstanding ASEAN Green Sustainable and Responsible Investment (SRI) Sukuk Wakalah of RM245.0 million. The rating outlook is stable

Leader Energy is the investment holding company of two solar power project companies with large-scale solar 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 PPA between Leader Energy’s two solar power project companies, Leader Solar Energy Sdn Bhd (LSE I) and Leader Solar Energy II Sdn Bhd (LSE II), with the offtaker Tenaga Nasional Berhad (TNB, AAA/Stable). Under the agreement, the energy generated by the solar power plants will be purchased by TNB at certain tariffs, thereby mitigating demand risk. The rating also incorporates the plants’ track record of energy generation that has been in line with forecasts. Moderating the rating are risks associated with solar resource variability as well as unforeseen outages that could affect the plants’ performance.

In 2021, both LSE I and LSE II recorded good operational performances, with energy production exceeding P90 estimates by 14.5% and 3.0%. LSE II’s excess output over P90 was lower compared to LSE I due to damaged underground cables caused by a third party in 1H2021; these have been successfully rectified and the plant’s operational performance has rebounded thereafter. Energy production at both plants continued to exceed P90 projections in 1Q2022.

In line with the plants’ good operational performance, total revenue for LSE I and LSE II in 2021 was recorded at RM38.9 million, above the projected RM35.2 million. Cash flow from operations (CFO) remained healthy at RM38.2 million. Based on Leader Energy’s cash flow projections, minimum and average finance service coverage ratios (FSCR) were strong at 2.36x and 2.71x. Projected cash flows remain capable of withstanding multiple stress scenarios, including lower energy generation, higher plant outage and increased operating cost. The group has liquidity of RM53.6 million after repaying its sukuk obligations in July 2022, the liquidity remains more than sufficient to meet its sukuk obligations of RM5.5 million in January 2023.

Rating outlook     
The stable outlook reflects our expectation that the project companies’ power plants will maintain their operational metrics in line with projections and generate stable income streams to meet the financial obligations under the rated programme.

Rating trajectory     

Upside scenario     
MARC Ratings could improve the outlook and/or rating if the plants continue to demonstrate its track record of strong operating performance while maintaining a healthy liquidity buffer to provide strong cash flow coverages.

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 power purchase agreement (PPA) terms 
  • Predictable energy generation from solar power plants
Key risks
  • Variability of solar resource
  • Plant performance risk



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