MARC has affirmed its rating of AA-IS on Cerah Sama Sdn Bhd’s (Cerah Sama) RM420.0 million sukuk with a stable outlook. Cerah Sama is the investment holding company of Grand Saga Sdn Bhd (Grand Saga), the concessionaire of the 11.5-kilometre Cheras-Kajang Highway.

The rating mainly reflects Cheras-Kajang Highway’s steady traffic performance that supports Cerah Sama’s cash flow generation to meet its financial obligation. The rating also considers the concessionaire’s adequate cash balances as well as its accommodative sukuk repayment profile. The rating is moderated by Cerah Sama’s weak leverage position and the potential impact from the Klang Valley Mass Rapid Transit (KVMRT) Line 1 on Cheras-Kajang Highway’s traffic volume.

For 10M2017, the aggregate average daily traffic (ADT) on Cheras-Kajang Highway increased by 4.5% y-o-y to 141,296 vehicles mainly due to base effects following the construction completion of KVMRT Line 1. Between 2014 and 2016, which corresponded to the peak of the KVMRT construction period. The Batu 9 and Batu 11 toll plazas on the highway registered three-year compounded annual growth rates of only 1.6% and 2.0% respectively. The highway’s better performance for 10M2017, coupled with lower projected traffic for 2017 in anticipation of KVMRT Line 1’s commencement enabled the highway to exceed its projections for the period.

Cerah Sama’s reduction in unaudited revenue and pre-tax profit y-o-y at RM71.1 million and RM23.6 million respectively was attributable to lower recognition of the government compensation of RM40,000, which was received in September 2017, as opposed to RM9.54 million in October 2016. Consequently, cash flow from operations (CFO) for 10M2017 declined by 17.8% y-o-y to RM42.6 million. However, Cerah Sama benefited from a net cash position of RM9.0 million due to lower dividend payment of RM14.0 million (10M2016: RM33.2 million). This, in turn, led to a higher ending cash balance of RM80.6 million as at October 31, 2017. MARC expects Cerah Sama to continue to prudently manage its dividend payout policy while maintaining its debt-to-equity (DE) ratio below the DE covenant of 4.50 times.

The base case projections reveal Cerah Sama’s minimum and average pre-distribution financial service cover ratios (FSCR) with cash balance of 2.31 times and 3.51 times respectively until sukuk maturity. MARC’s sensitised scenario demonstrates that Cerah Sama’s cash flows can withstand stressed traffic underperformance as shown by its FSCR that remains in compliance with covenanted FSCR of 1.75 times. MARC opines that the risk of severe traffic underperformance is low given the highway’s mature profile as well as increasing population at the highway’s catchment areas. Assuming the absence of a finance service reserve account and encumbered cash balances, traffic on the highway can sustain traffic deterioration of up to 6% before the concessionaire’s forward-looking FSCR reaches 1.00 time in 2019. Cerah Sama’s first sukuk principal repayment of RM30 million commences in 2020.

The stable outlook incorporates MARC’s expectations that Cheras-Kajang Highway would continue to exhibit satisfactory traffic performance and Cerah Sama will maintain its strong business and financial profiles. Any downward pressure on the rating would likely hinge on any adverse changes on the concessionaire’s credit profile and/or prolonged traffic underperformance.

Contact: David Lee, +603-2717 2900 / david@marc.com.my

© Press Release 2018