KONSORTIUM LEBUHRAYA UTARA-TIMUR (KL) SDN BHD - 2023 |
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| Report ID | 60538900469430 | Popularity | 440 views 187 downloads | |||||
| Report Date | Apr 2023 | Product | ||||||
| Company / Issuer | Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd | Sector | Infrastructure & Utilities - Toll Road | |||||
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| Rationale |
Rating action MARC Ratings has affirmed its AA-IS and A- ratings on Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd’s (Kesturi) RM2.3 billion Sukuk Musharakah (Senior Sukuk) and RM180 million Redeemable Secured Junior Bonds (Junior Bonds). The outlook on both ratings is stable. The rating differential between the Senior Sukuk and Junior Bonds reflects the latter’s subordinated status. Rationale Kesturi is owned by Ekovest Berhad (60% via Nuzen Corporation Sdn Bhd) and the Employees Provident Fund (EPF) (40%). It operates the Duta-Ulu Kelang Expressway Phase-1 (DUKE 1) and Phase-2 (DUKE 2) with a total length of 34 kilometres. Kesturi benefits from its highway routes linking matured and densely populated areas, such as Damansara, Mont Kiara, Sri Hartamas, Ulu Kelang and Setiawangsa, with the city centre. The ratings incorporate the highways’ easy accessibility and wide connectivity to other major highways in the Klang Valley, as well as their stable commuter traffic base. Traffic which fell sharply in 2020/2021 amid the COVID-19 pandemic, has picked up strongly since October 2021 as travel restrictions were eased; aggregate traffic surpassed the pre-pandemic level by nearly 14% in 8MFY2023 (July 2022-February 2023). We expect growth traction to continue at a moderate pace on the back of the economy’s stabilisation. The 14-year-old DUKE 1 has a mature traffic profile with low but steady traffic growth averaging 1.35% p.a. over the past five years, excluding periods impacted by the pandemic. DUKE 2 is relatively young (opened to public in October 2017) and its traffic has been growing steadily. We forecast traffic to continue its growth path at a moderate rate of 3% p.a. from FY2024 to FY2028. Over the longer term, we expect traffic to mature and grow at the same modest pace adopted for DUKE 1 (1%). Kesturi’s coverage metrics are strong. Under our sensitised case of moderate growth as above, senior financial service cover ratio (Senior FSCR) is projected to average around 3.4x for the period between FY2023 and FY2034. We have also run a sensitivity case where we assume flat traffic and toll tariffs over the remaining life of the sukuk, while incorporating a one-year delay in government compensation. Under these assumptions, the average Senior FSCR is about 2.8x. Breakeven analysis indicates that Kesturi could withstand a traffic decline of around 25% of its base case and still meet its financial obligations (Senior FSCR of 1.0x), indicating a relatively strong tolerance against adverse scenarios. Total borrowings saw a slight reduction to RM2.1 billion as at end-2022, from RM2.2 billion the year prior due to RM100 million repayment of the sukuk, and are expected to reduce progressively in line with scheduled repayments. Debt-to-equity (DE) ratio stood at 22.3x as at end-June 2022 versus around 23.6x as at end-June 2021. While this has trended down to 14.7x as at end-December 2022 on improving profitability and lower borrowings, we still view the current leverage level as high. However, as traffic levels are likely to continue on a positive trajectory, we expect further improvement in the DE ratio. Liquidity is deemed adequate, with RM92.8 million in cash and cash equivalents as of end-2022 and projected operating cash flow (CFO) of around RM295 million in 2023. This is sufficient to cover the Senior Sukuk’s upcoming profit payments of RM95.5 million and principal repayments of RM140.0 million due on December 2, 2023. Kesturi also retains financial flexibility in the form of the long remaining life of its concession ending August 2059, with an option to extend for another 10 years. This could afford the company an avenue for refinancing, if required. Rating outlook The stable outlook reflects the improvement in traffic across Kesturi’s road network as well as their demonstrated mature and stable traffic profile. Rating trajectory Upside scenario A rating upgrade is unlikely in the near term as it would require a material improvement in the business and financial profile. Downside scenario A material worsening of traffic performance compared with our expectations with adverse impact on credit metrics could lead to negative rating action. Key strengths
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