MARC has affirmed its MARC-1IS and AA-IS ratings on Northport (Malaysia) Bhd’s (Northport) Islamic Commercial Papers (ICP) Programme and Islamic Medium-Term Notes (IMTN) Programme. The ratings outlook is stable.
Northport operates North Port (main port) and Southpoint (focuses on short-sea trades) in Port Klang under long-term concessions expiring in November 2043. The ratings affirmation continues to reflect Northport’s position as an established domestic port operator, its improving margins through cost synergies as a member of the MMC Group and its satisfactory credit metrics. These factors are mainly moderated by the continued pressure on throughput volume, largely due to the residual impact from the recent restructuring of major global shipping alliances.
Northport’s container handling volume declined by 2.6% y-o-y to 1.3 million twenty-foot equivalent units (TEUs) during 1H2019. The impact on revenue growth was moderated by the upward revision of tariff by about 13% in March 2019. Conventional throughput volume, however, grew by 10.2% y-o-y to 4.5 million freight weight tonnes (FWT).
Northport recorded higher rental income from warehouses in line with the increase in transloading of conventional cargo, largely accounting for the total revenue growth of 3.6% y-o-y to RM323.3 million in 1H2019. Benefitting also from cost synergies, operating profit rose to RM96.9 million, translating to a higher operating profit margin of 30.0%. The rated programmes have a combined limit of RM1.5 billion and the outstanding under the programmes was RM450 million as at end-December 2019. Its finance-to-equity ratio rose to 0.67x from 0.49x, mainly due to the adoption of the MFRS framework.
Over the next two years, Northport’s capex, which is expected to be funded by sukuk proceeds, will largely consist of construction of new warehouses and development of a free zone area. The rating agency expects Northport to manage its capital spending and dividend distribution to maintain a healthy cash buffer in the event of any non-discretionary cash outlays.