[RAM] RAM Ratings affirms Sarawak Energy's AAA sukuk rating

RAM Ratings has affirmed the AAA/Stable rating of Sarawak Energy Berhad’s (SEB or the Group) RM15.0 bil Sukuk Musyarakah Programme (2011/2036). 

The affirmation is premised on SEB’s critical role as Sarawak’s sole power utility and a key facilitator of the Sarawak Corridor of Renewable Energy (SCORE). The Sarawak government’s full ownership of SEB – through the State Financial Secretary – also underlines their strong relationship. As such, we view it highly likely that SEB will receive extraordinary government support in the event of financial distress, based on RAM’s support assessment criteria for government-linked entities.

SEB is the dedicated single buyer and only power retailer in Sarawak. It owns key transmission and distribution assets, having control over all operating generation plants in Sarawak. The Group’s business remains robust on the back of favourable long-term take-or-pay power purchase agreements (PPAs) with bulk customers in SCORE, albeit highly concentrated in a single offtaker. Its clean energy offering – with renewable hydropower constituting over 70% of the Group’s generation mix – is a competitive advantage to attract new customers. 

SEB’s revenue for FY Dec 2023 was a higher RM7.15 bil (+2.62% y-o-y) but elevated expenses kept its operating profit before depreciation, interest and tax relatively unchanged at RM3.70 bil. Pre-tax profit contracted by 19.5% y-o-y to RM1.79 bil, dragged by higher impairment charges on its receivables. ¹ Stronger electricity sales in 1H FY Dec 2024 led to an improved top line of RM3.69 bil and a pre-tax profit of RM1.01 bil for the period. Although the Group’s debt level was flattish at RM20 bil, gearing ratio eased to 1.24 times as at end-June 2024 on broader earnings accumulation while funds from operations debt coverage (FFODC) was stable at 0.18 times (end-December 2023: 1.29 times and 0.18 times). 

With higher anticipated electricity demand, SEB is actively investing in new generation capacity to achieve the targeted 10 GW by 2030 (currently, 6 GW). This is expected to almost double its annual capital outlays to around RM4.50 bil. While these sums will mostly be debt-funded, the Group’s staggered earnings and higher operating cashflows from more active commissioning and/or increased energy uptake, should provide some headroom for new borrowings. Under our sensitised cashflow scenario assuming a more gradual ramp-up of electricity demand, SEB’s projected FFODC and gearing will average at 0.16 times and 1.14 times, respectively, for fiscal 2025-2027.

SEB’s business is structurally skewed towards contributions from bulk customers, with significant exposure to a single client – Press Metal Aluminium Holdings Berhad (debt facilities rated AA₂/Positive by RAM), including PMB Silicon Sdn Bhd – contributing 39% of SEB’s revenue in 1H FY Dec 2024. We draw comfort from the latter’s commendable performance and good payment record to date. Moreover, the take-or-pay clauses under PPAs also give the Group some cashflow stability. Supply concentration risk posed by a reliance on the Bakun hydroelectric plant will be alleviated by new plant-ups.


Analytical contacts
Chong Van Nee, CFA 
(603) 3385 2482
vannee@ram.com.my

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