Published on 28 Dec 2021.
RAM Ratings has reaffirmed the AAA/Stable rating of Westports Malaysia Sdn Bhd’s (Westports Malaysia or the Company) RM2.0 bil Sukuk Musharakah Programme (2011/2031) (the Sukuk).
Westports (the Port) is Malaysia’s largest container handling terminal and multi-cargo port, operating along the Straits of Malacca, one of the world’s busiest shipping routes. The Company’s concession period under its Privatisation Agreement (PA) with the Port Klang Authority and the Government of Malaysia runs up to 2054.
Apart from the Port’s strategic location, the Sukuk’s rating is anchored on the Company’s strong market position and competitive edge in handling ultra large container vessels, given its natural deep-water port and established relationships with international mega shipping liners. Westports Malaysia’s financial and credit metrics, as measured by its leverage, profitability and cashflow coverage-to-debt indicators, are superior to peers’. This is testament to the Company’s cost and operating efficiency, coupled with its productivity-focused management and sound governance.
Despite the carnage wrought by the COVID-19 pandemic in the last 18 months, which continues to disrupt global supply chain management and trade flows, Westports Malaysia’s operational and financial performance has remained broadly resilient. For 9M 2021, the Port’s container throughput came in slightly higher at 7.9 mil TEUs (+2.6% y-o-y), supported by buoyant transhipment volumes (+4.6% y-o-y). This corresponds to the resumption of trade activities as lockdowns eased and economies reopened towards end-2020/early-2021.
Even with the strong 9M 2021 showing, we expect the Port’s container throughput to be slightly lower than last year for full-year 2021 due to the recent flash flood in the Klang Valley. As of 18 December 2021, Westports’ container throughput volume stood at 10.1 mil TEUs. Although the Port’s container and conventional facilities remain operational throughout the flooding situation, affected employees and road access are expected to impact productivity and cause berthing related delays following the floods. Near-term throughput volume and growth prospects stay anchored on the pace of global supply chains and trade recovery.
Figure 1: Throughput volume against operational revenue growth
Note: Operational revenue excludes construction-related revenue
The Company’s top line was up 5.9% y-o-y at RM1.52 bil in 9M FY Dec 2021 (corresponding period in 2020: RM1.43 bil). The better revenue showing contributed to a higher operating profit before depreciation, interest and tax (OPBDIT) margin of 60.5% (FY Dec 2020: 59.1%) in spite of higher manpower and fuel costs incurred in the same period. This translated into strong cashflows, providing room for accelerated debt repayment (if required) as well as leverage and financial flexibility for the Port’s planned expansion (Westport 2.0 or the Project). Westports Malaysia’s annualised debt-to-OPBDIT ratio and funds from operations debt coverage stood at an impressive 1.04 times and 0.90 times, respectively, in 9M fiscal 2021 (fiscal 2020: 1.18 times and 0.76 times).
The Project is underway, with negotiations on the PA and commercial terms ongoing between Westports Malaysia and the government. Westport 2.0 is expected to double the Port’s container handling capacity, at a total cost of more than RM10 bil over the next 20 years.
Barring unexpected capital expenditure (capex) and the acceleration of expansion plans, we anticipate the Company’s financial profile to stay robust even after considering the proposed expansion. Our analysis incorporates RM5.1 bil of capex between 2021 and 2026 (averaging about RM842 mil per annum), to be funded by a mixture of debt, internally generated funds, and equity injection. Despite the capex boost, Westports Malaysia’s financial metrics should remain healthy and supportive of the AAA issue rating.
A moderating factor is the inherent cyclicality of the Port’s transhipment volume, which is highly dependent on global and regional trade flows. On this note, the Company’s increasing proportion of gateway cargo (imports and exports) in recent years, which is more stable and lucrative, is credit positive. Westports Malaysia faces high customer concentration risk and tariff pressure, with four shipping liners under the Ocean Alliance handling about half the Port’s total throughput.
Yip Chee Meng
(603) 3385 2516
Davinder Kaur Gill
(603) 3385 2525
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Ratings on Westports Malaysia Sdn Bhd