RAM Ratings has affirmed the AA3/Stable rating of Tadau Energy Sdn Bhd's (Tadau or the Company) RM250 mil SRI Sukuk Programme (2017/2033) (the Sukuk). 

The rating is premised on the sound operational performance of Tadau's two solar photovoltaic plants in Kudat, Sabah, with nominal capacities of 2 MWac and 48 MWac, respectively (collectively, the Plants). The Plants supply electricity to Sabah Electricity Sdn Bhd (SESB) under two power purchase agreements. 

In 2022, the Plants' energy production surpassed our sensitised projection and the combined declared annual quantity (DAQ)  the forecast provided to SESB at the start of each year  by a marginal 2.9% and 0.2%, respectively. The Plants' energy output for 5M 2023 stayed above our projection, although it was 5.7% lower than the estimated DAQ for that period  skewed by seasonally lower solar irradiance. We expect the Plants to meet the DAQ and exceed our projected numbers for 2023. Except for February and May 2023, the Plants' availability surpassed 99% every month during the review period.

Tadau's top line for FY Jun 2022 improved from the previous year owing to generally higher irradiance. This trend continued into FY Jun 2023, with the annualised 10-month revenue rising 1.0% y-o-y. A lower finance cost coupled with higher income from permitted investments pushed pre-tax profit for FY Jun 2022 up to RM13.5 mil (FY Jun 2021: RM9.8 mil). With 10M fiscal 2023's pre-tax profit already at RM11.8 mil, Tadau's full-year profit is likely to outperform fiscal 2022's, assuming the better irradiance and sound plant operations continue.

Tadau made a dividend payout of RM5.5 mil in FY Jun 2023 (FY Jun 2022: RM29.4 mil). Our sensitised cashflow analysis estimates respective minimum and average annual finance service coverage ratios of 1.50 times and 2.44 times over the Sukuk's remaining tenure, provided the Company maintains prudence in future distributions.

Like other solar plants, Tadau's Kudat plants are exp