[RAM] RAM Ratings assigns first-time AAA rating to Perbadanan Bekalan Air Pulau Pinang

RAM Ratings has assigned a rating of AAA/Stable to Perbadanan Bekalan Air Pulau Pinang Sdn Bhd’s (PBAPP or the Company) proposed RM5 bil Islamic Medium Term Notes (IMTN) Programme. 

PBAPP is the exclusive licensed water supply operator serving the state of Penang. Corporatised on 1 March 1999, the Company’s operations include the abstraction of raw water, production and distribution of treated water in the state. PBAPP manages four dams, nine water treatment plants, 59 treated water reservoirs, 46 treated water towers, 100 booster pump stations and 4,801 km (100 mm and above) of public water supply pipelines. 

The Company’s essential public service role and integral relationship with the state government – evidenced by board representation (including the Chief Minister as chairman and key state government officials) and state funding and involvement in major water projects – make extraordinary support from the latter, in our view “almost certain”, if needed. Accordingly, PBAPP’s issue rating mirrors Penang’s State Implicit Strength (SIS) which we assess as ‘superior’, the highest ranking under RAM’s SIS framework. Although among Malaysia’s smaller states, Penang ranks fifth in GDP contribution, with a steady investment pipeline supporting the state’s economic prospects. 

PBAPP is among Malaysia’s best-run water operators, consistently achieving non-revenue water (NRW) and reserve margin levels that outperform the national average. In FY Dec 2024, Penang’s NRW rate and reserve margin were 28% and 30%, respectively against the FY Dec 2024 national averages of 34% and 15%. The Company demonstrates strong cost management, maintaining steady earnings and healthy margins even though Penang’s average domestic water tariff of RM0.86 per m3 is among the country’s lowest. Following the February 2024 water tariff hike, its pre-tax profit for fiscal 2024 increased to RM150.10 mil, a 120% year-on-year improvement. Except for FY Dec 2018 when a deferred tax liability was recognised, PBAPP has remained profitable since its corporatisation, reinvesting most of its earnings in the state’s water infrastructure. 

Penang’s limited land and water catchment areas, however, pose supply concentration risk. Climate risks are also apparent, affecting raw water availability and bringing on periodic water shortages. As the state relies on Sungai Muda – a water resource shared with Kedah – for more than 80% of its raw water, the Water Contingency Plan (WCP) 2030 and the Perak-Penang Water Project were initiated to ensure supply sufficiency in the medium to long term. The proposed RM5 bil IMTN programme is mainly intended to fund WCP 2030 projects, which will be implemented in phases over the next six years. PBAPP plans to raise up to RM1.30 bil of IMTN between 2025 and 2027. 

These additional borrowings, while hefty, are anticipated to be supported by increased water consumption and sales that will be driven by the state’s economic and population growth. Our sensitised projections for 2025 to 2027 indicate that the ramp-up of water projects will keep the Company’s funds from operations debt coverage (FFODC) manageable at 0.10 times to 0.26 times, with gearing between 0.52 times and 1.35 times, although higher than its historical performance. In FY Dec 2024, FFODC was 0.83 times while gearing came in at 0.23 times. The proposed nationwide water tariff hike that is currently under deliberation will further boost PBAPP’s earnings if implemented. 


Analytical contacts
Liew Kar Ling
(603) 2708 8216
karling@ram.com.my

Chong Van Nee, CFA
(603) 2708 8210
vannee@ram.com.my

Media contact
Sakinah Arifin
(603) 2708 8212
sakinah@ram.com.my