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Maybank IBG sees stable outlook for power, property, toll road sectors

10/01/2022 12:57 PM

KUALA LUMPUR, Jan 10 -- Maybank Investment Banking Group (Maybank IBG) has placed a ‘stable’ outlook rating for the power sector this year, given its stability and defensiveness following a healthy reserve margin. 

In its MY Credit Outlook 2022 - Chartbook and Views report, it said credit fundamentals remained stable for most independent power producers (IPPs) on the back of timely payments from off-takers and healthy operating performance.

On the other hand, key credit risks would include delays in payments, operational issues and unexpected large cash outflows that weaken debt service cover. 

Maybank IBG is also in favour of solar IPPs for their straightforward operations and environmental, social and corporate governance (ESG) factor, while taking note of credit risks from energy output performance, unexpected operating issues or higher costs and solar photovoltaic (PV) module quality. 

The Energy and Natural Resources Ministry (KeTSA) is targeting a 31 per cent renewable energy (RE) share of national installed capacity by 2025. 

Maybank IBG noted that new solar IPP issuer, UiTM Solar Power Dua Sdn Bhd, has raised RM100 million and reNIKOLA Sdn Bhd raised RM390 million, while Large Scale Solar @Mentari (LSS4) projects were awarded in 2021 and expected to begin construction in 2022.

On the contrary, it said plants under construction face more challenges.

“Cypark Ref Sdn Bhd’s outlook was cut to negative in December following extended construction delays due to the prolonged pandemic and relocation of two plants. 

"It will depend on engineering, procurement, construction and commissioning cost waiver and a bank guarantee from Cypark Resources Bhd to shore up liquidity and avoid potential default in June 2022. 

"There is also risk of cost overrun, given the higher material prices due to supply chain disruptions," it said.

As for the property sector, it expects the retail sector to recover on sustained economic reopening and gradual easing of international borders. 

It noted that the mall occupancy rate appeared to have bottomed-out with early signs of stabilising. 

Office rents, however, may remain under pressure with lower occupancy rate and tenants favoring newer and sustainable buildings. 

It also said property developer's credit metrics overall remained sound and the impact from Cukai Makmur should be minimal as projects developments are project-based under different entities. 

"We prefer Eco World Development Group Bhd over Mah Sing Group Bhd, but we are cautious on Tropicana Corporation Bhd due to increased leverage and slow recovery for property investments. 

"We think IOI Properties Group Bhd (IOIPG) (AA/negative) should be able to keep its current rating as strong profitability, solid liquidity and financial flexibility help moderate potential higher leverage, and if IOIPG commits to a plan to deleverage and restore credit metrics to levels that commensurate with AA rating," said Maybank IBG.

Meanwhile, the investment banking group placed a ‘stable’ outlook but with a selective stance on the toll road sector, underpinned by healthy liquidity, timely government compensation and adequate liquidity or support from project sponsors. 

Nonetheless, toll road issuers with weak liquidity positions or aggressive capital structure have less headroom to withstand a slower-than-expected traffic recovery, it said.

"The sector needs clarity on government policies. Gamuda Bhd and IJM Corporation Bhd have submitted proposals to sell their toll roads to a private highway trust and are awaiting government’s decision. 

"There’s been no news on PLUS Bhd’s toll restructuring since its toll rates were reduced in 2020 with a freeze on toll hikes going forward, and there will be additional political uncertainty if general election (GE15) happens in 2022," it added. 




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