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RAM Ratings reaffirms AA1(s)/Stable rating of Samalaju’s sukuk

Published on 22 Dec 2021.

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RAM Ratings has reaffirmed the AA1(s)/Stable rating of Samalaju Industrial Port Sdn Bhd’s (Samalaju or the Company) Sukuk Murabahah Programme of up to RM950 mil (2015/2036) (the Sukuk). The suffix (s) denotes support afforded by an unconditional and irrevocable corporate guarantee from Bintulu Port Holdings Berhad (BPHB, rated AA1/Stable/P1) – Samalaju’s parent company. 

Samalaju Port (the Port) plays an important role as a dedicated port and logistical hub for tenants of Samalaju Industrial Park (the Park), which forms part of the Sarawak Corridor of Renewable Energy. Subsequent to Phase 1 of Samalaju Port becoming operational on 6 June 2017, the Port has seen promising growth in throughput volumes handled over the years. In 2020, the Port’s cargo volume declined 4.7% to come in at 4.71 mil tonnes (2019: 4.94 mil tonnes) due to diminished demand amid the COVID-19 outbreak. 

In 1H 2021, cargo volume surged 18.8% y-o-y to 2.67 mil tonnes, lifted by the conversion of aluminum and manganese exports from container to bulk cargo and the commencement of operations at Press Metal Bintulu Sdn Bhd’s Phase 3 plant. The full-year cargo volume handled is expected to reach 5.04 mil tonnes, backed by expansions undertaken by existing and new customers at the Park. 

Stripping off revenue from construction services, Samalaju’s top line slipped 2.6% y-o-y to RM111.71 mil in FY Dec 2020 (FY Dec 2019: RM114.72 mil), in line with lower cargo demand from customers during the pandemic. The Company continues to incur a pre-tax loss on account of elevated depreciation, amortisation and finance costs since the completion of the Port. The Company’s weak profitability has translated into subdued leverage and cashflow-debt-coverage ratios. Over the next five years, we expect its adjusted funds from operations debt coverage ratio to remain weak at an average 0.05 times while adjusted gearing will peak at 3.66 times. With cash reserves of RM 356.47 mil (including investments in unit trusts), Samalaju’s liquidity position is healthy and amply able to cover short-term lease obligations and profit repayments of RM39.46 mil due in the next 12 months.

Samalaju is subject to customer concentration risk as its business hinges solely on the Park’s tenants. Demand at Samalaju Port is currently spurred by six customers – Press Metal, OM Materials Sdn Bhd, Sakura Ferroalloys Sdn Bhd, Pertama Ferroalloys Sdn Bhd, PMB Silicon Sdn Bhd, and Malaysian Phosphate Additives. Any severe deterioration in the business and/or financial profiles of these entities may affect the Company’s performance. Barring extreme shifts in economic conditions, the risk associated with the potential departure of any of these customers is moderated by their significant investments in establishing facilities at the Park. 

The Sarawak state government plays a key role in determining Samalaju’s strategic direction and is represented on the Company’s board. By extension, regulatory oversight of the Port rests with the Samalaju Port Authority, a state statutory body. In view of BPHB’s diverse shareholding through the Sarawak state government, Petroliam Nasional Berhad, and government-related agencies, the incentive to provide the Company with financial assistance (if and when required) is strong. This will facilitate the success of the SCORE while ensuring Samalaju meets its financial and operational obligations.

 

Analytical contacts
Zachary Tan
(603) 3385 2612
zachary@ram.com.my

Davinder Kaur Gill
(603) 3385 2525
davinder@ram.com.my

 

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2021 by RAM Rating Services Berhad



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