[RAM] RAM Ratings affirms Cenergi's AA3/Stable/P1 ratings

RAM Ratings has affirmed Cenergi SEA Berhad’s (Cenergi or the Group) AA₃/Stable/P1 corporate credit ratings (CCR), along with the AA₃/Stable rating of the Senior Sukuk and A₂/Stable rating of the Subordinated Perpetual Sukuk under its RM1.5 bil Senior Sukuk/Subordinated Perpetual Sukuk Programme (2021/-). The latter is rated two notches below the Senior Sukuk to reflect increased loss severity and the risk of non-performance relative to senior financing obligations. 

Cenergi is a domestic integrated renewable energy (RE) player, specialising in the production of palm oil mill effluent (POME) biogas power. It is 92.8% owned by UEM Lestra Berhad (UEM Lestra), which in turn is the wholly owned subsidiary of UEM Group Berhad (UEM). Both Cenergi and UEM Lestra play a major role in UEM’s green agenda. Based on RAM’s rating methodology for parent-subsidiary rating links, we have assessed Cenergi to have a close relationship with UEM.  As such, Cenergi is deemed highly likely to receive extraordinary support from its parent if required, enabling its CCR and Senior Sukuk ratings to benefit from a rating uplift.

The ratings reflect Cenergi’s steadily growing RE business, largely from its dominant position in the less competitive biogas industry. Cenergi’s other RE businesses include solar energy and energy efficiency, while its four biomass pellet plants and one mini hydro project are expected to be commissioned by around year end. The Group’s biogas and solar segments currently make up the bulk of its earnings. 

Cenergi is the largest grid-connected POME biogas provider under Malaysia’s Feed-in-Tariff scheme, holding an estimated market share of 18.7% (50.5 MW awarded capacity) as at end-June 2024. Its local power projects are backed by long-term RE power purchase agreements with Tenaga Nasional Berhad, the offtaker. These contracts afford attractive tariffs and priority of despatch, imposing no cash penalties for plant completion delays or underperformance. We view the Group’s operational performance as satisfactory overall, emphasising its strong execution capability.

In the increasingly competitive solar industry, Cenergi has leveraged on its strong corporate lineage to develop new rooftop solar projects for companies within the larger UEM group and establish collaborations with other corporate groups. Its energy efficiency operations stand to benefit from supportive government policies geared towards a carbon-neutral economy.

Cenergi’s still-small scale and relatively weak financial footing however moderate its business profile. Further, the growth of its core biogas portfolio remains capped by regulated RE quota while its plants’ performances are susceptible to the volatility of feedstock supply. We also remain mindful of execution risk as Cenergi’s entry into less-familiar markets may strain its financial profile, given the hefty upfront capital expenditure required. Planned future equity injections from UEM and increased accretive cashflow will offset these concerns.

The Group posted healthier revenue and operating profit in FY Dec 2023, but pre-tax profit was still marginal at RM5.16 mil, dragged down by hefty depreciation expenses and finance costs. Without other income, Cenergi’s bottom line would have dipped into the red. Our sensitised cashflow projection, which assumes lower electricity output and delays in project completion (particularly the biomass pellet and mini hydro plants) indicates that gearing and funds from operations debt coverage levels over the next two years remain supportive of the Group’s ratings. Any rating upside will depend on the new ventures meaningfully outperforming our expectations. 


Analytical contacts
Hani Hamizah Nor Hashim
(603) 3385 2575
hani@ram.com.my

Chong Van Nee, CFA
(603) 3385 2582
vannee@ram.com.my

Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my