CREDIT ANALYSIS REPORT

UiTM SOLAR POWER SDN BHD - 2021

Report ID 605389048 Popularity 49 views 8 downloads 
Report Date Sep 2021 Product  
Company / Issuer UITM Solar Power 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 UiTM Solar Power Sdn Bhd’s (UiTM Solar) outstanding Green Sustainable and Responsible Investment (SRI) Sukuk of RM202.3 million. The outlook is stable

Rationale     
The rating affirmation continues to reflect the strength of UiTM Solar’s 21-year power purchase agreement (PPA) with Tenaga Nasional Berhad (TNB) under which the demand risk is eliminated as energy generated by UiTM Solar’s 50MWac solar photovoltaic plant will be purchased at a fixed tariff. The rating is moderated by the variability in solar irradiance and operational risk that may affect the amount of electricity generated.

In 1H2021, the plant generated electricity output of 40,617 MWh, 2.6% higher than its P90 forecast. The good performance during the period was due to solar irradiance that largely exceeded forecast while no major outages were encountered. Accordingly, UiTM Solar recorded revenue of RM16.4 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of RM14.8 million. This represents 52.2% and 53.5% of projected revenue and EBITDA in 2021, keeping the plant on track to achieving its projections barring any unforeseen operational issues.

Cash flow from operations (CFO) remained healthy at RM11.9 million in 1H2021 despite being lower than the previous year’s corresponding period (1H2020: RM20.8 million) due to working capital changes. We further note that its cash and cash equivalents of RM27.4 million as at end-June 2021 are sufficient to cover the next sukuk profit payment amounting to RM6.0 million due in October 2021. 

Under the P90 base case projections, the project’s minimum and average finance service coverage ratios (FSCR) with cash stood at 2.29x and 2.89x, providing a comfortable buffer for sukuk repayments. Our sensitivity analysis demonstrates that the projected cash flow can withstand moderate stress, such as plant unavailability of up to 13.7% and a 50% increase in operational costs before the minimum FSCR covenant of 1.25x is breached.

Rating outlook     
The stable outlook reflects our expectation that the plant will continue to maintain good operational performance and meet P90 energy generation projections.

Rating trajectory

Upside scenario     
We do not envisage a rating upgrade in the near term. The rating could be improved if the plant demonstrates a consistent track record of strong operating performance, and UiTM Solar is able to build up and maintain a strong liquidity buffer.

Downward scenario     
Downward pressure on the rating would materialise if plant performance falls substantially below expectations, such that UiTM Solar’s debt service coverage metrics are significantly impacted. 

Key strengths
Healthy project fundamentals backed by PPA terms 
Sufficient cash flow generation from solar power plant operation
Improvement in leverage position

Key risks
Variability of solar irradiance
Plant performance risks


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