RAM Ratings has reaffirmed the AA1(bg)/Stable rating of the RM200 mil five-year tranche under Agroto Business (M) Sdn Bhd's (Agroto or the Company) ASEAN Sustainability SRI Sukuk Programme of up to RM300 mil. 

The rating reflects an irrevocable and unconditional guarantee extended by Sabah Development Bank Berhad (rated AA1/Stable/P1) which enhances the credit standing of the five-year tranche beyond Agroto's standalone credit strength. Agroto is a notable vegetable grower in Malaysia, with 110 acres of planted area in Kinta Highlands, Perak. 

While farming operations remained fully operational during pandemic-induced lockdowns, Agroto did face some disruption in the supply of planting materials and product delivery to customers. The overall impact however is considered manageable.

Our financial analysis is based on the consolidated financials of Agroto's parent, CH Kinta Valley Sdn Bhd (CH Kinta or the Group), which consolidates the accounts of the Company and its wholly owned subsidiary, Natural Fresh Marketing (M) Sdn Bhd) as a proxy for Agroto's consolidated financial position; Agroto does not prepare consolidated financial statements but will do so from FY Dec 2021 onwards. In FY Dec 2021, CH Kinta's revenue improved by 20.8% to RM44.6 mil (FY Dec 2020: RM36.9 mil) despite a weaker sales volume (-4.7%), thanks to higher selling prices. Increased input costs (such as fertilisers and chemical) nevertheless broadened its operating loss to RM3.3 mil (FY Dec 2020: RM2.8 mil loss). 

Reflective of operating losses, CH Kinta's cash generating ability is weak, with funds from operations still in negative territory in fiscal 2021. As at end-December 2021, the Group's gearing climbed to 1.03 times (end-December 2020: 0.63 times) in view of a heavier debt load subsequent to the drawdown of the RM200 mil sukuk tranche and continued erosion of retained earnings.

To cater to the strong demand for vegetables and raise production to a profitable level, Agroto emb