Published on 18 May 2023.
RAM Ratings has assigned corporate credit ratings of AA3/Stable/P1 to MTT Shipping Sdn Bhd (the Company). Concurrently, we have assigned preliminary ratings of AA3/Stable/P1 to the Company’s proposed Islamic Medium-Term Notes and Islamic Commercial Papers (ICP/IMTN) Programme with a combined aggregate limit of up to RM1.5 bil. MTT Shipping provides container liner shipping services to manufacturers, traders and freight forwarders, as well as feeder services to main line operators. It also has a growing charter hire operation.
The ratings consider MTT Shipping’s established position in the local container shipping industry and its sturdy debt coverage ratios even after assuming lower freight/charter tariffs and gaps between charter periods when existing charters expire in our forecast. Debt-funded expansion and risks from its enlarged fleet amid weaker demand and the poorer trade outlook globally are moderating factors. MTT Shipping is also exposed to bunker fuel cost volatility, foreign exchange risk and the cyclicality of the shipping sector. Execution risks and sector volatility are mitigated, to some extent, by a strong management team with extensive industry experience (spanning 32-41 years) and demonstrated ability to optimise shipping routes in response to the dynamic market.
With its fleet of 17 container vessels with a total capacity of 19,124 TEU (20-foot equivalent units), MTT Shipping is a sizeable player, with an estimated 40.5% share of the local market. It focuses mainly on domestic routes, particularly between Peninsular and East Malaysia, that are more stable with observably less volatile freight rates and volumes compared to international trade routes. Amid rapid fleet and trade routes expansion as well as unprecedented hikes in freight and charter rates, MTT Shipping’s revenue registered strong double-digit growth in the past three years, while operating profit before depreciation, interest and tax (OPBDIT) more than doubled to 625.79 mil last year (FY Dec 2021: RM251.87 mil). Consequently, the Company’s debt coverage ratios are sturdy at above 0.30 times.
MTT Shipping’s organised and dynamic approach emphasises extensive and timely reporting to optimise capacity and maximise yield, supported by investments in various information technology systems. This reinforces its business position, resulting in profit margins that are stronger than peers. The long working relationship of the Company’s five promoters mitigates its diverse ownership.
MTT Shipping’s debts rose sharply to RM554.47 mil as at end-December 2022 (end-December 2018: RM92.37 mil) to increase and modernise its fleet. This is in line with its strategy to expand regionally and explore new routes with focus on short-sea routes between India, China and Southeast Asia amidst increasing regionalisation of trade. Gearing nonetheless eased substantially to 0.53 times last year from a high of 1.02 times as at end-December 2021 owing to significantly improved profit in FY Dec 2022. Debt to OPBDIT ratio was also fairly low at 0.89 times last year. Debt levels are projected to peak at RM940 mil this year upon issuance of the proposed ICP/IMTN before tapering off as operating cashflows sufficiently cover capital expenditure needs. Gearing is estimated at around 0.60 times-0.80 times and debt to OPBDIT at under 2 times.
MTT Shipping may face challenges in securing customers or chartering out its 11 new vessels, mostly to be delivered in 2024. Global freight rates have plummeted since 2Q 2022 due to easing supply chain disruptions and softer demand. An anticipated influx of new capacity over 2023-2025 will continue to dampen rates. Nonetheless, the better efficiency of the Company’s new ships which are compliant with new regulations gives it an advantage over older vessels. Local trade is also more stable, underpinned by base demand for routes between Peninsular and East Malaysia. We expect MTT Shipping’s OPBDIT to moderate to RM450 mil-RM500 mil in the next few years under our sensitised scenario. Even so, funds from operations debt cover ratio will be strong at above 0.50 times.
Karin Koh, CFA
(603) 3385 2506
Thong Mun Wai
(603) 3385 2522
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Ratings on MTT Shipping Sdn Bhd