MARC has affirmed its MARC-1_IS 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.

The ratings affirmation is mainly driven by Northport’s established position in providing container and conventional cargo handling services through North Port and Southpoint in Port Klang and its healthy cash flow generation, underpinned by a tariff structure under long-term concessions expiring in November 2043. The rating also incorporates improved operating margins as a result of synergistic cost savings as a subsidiary of MMC Corporation Bhd, the largest port operator in the country. These strengths provide a buffer against a challenging outlook in handling volume growth amid the ongoing COVID-19 pandemic. A key moderating factor is the keen competition from other regional port operators.

During 1H2020, owing to reduced industrial activities due to the COVID-19 pandemic, Northport recorded lower throughput volume for both container and conventional cargo services which declined by 10.9% y-o-y to 1.2 million twenty-foot equivalent units (TEUs) and 15.9% y-o-y to 3.8 million freight weight tonnes (FWT). MARC has observed that since the gradual lifting of movement restrictions and resumption of business and trade activities in 2H2020, Northport has shown some recovery in its overall handling volumes.

The throughput volume for conventional cargo, which grew to 9.2 million FWT in 2019 from 8.0 million FWT in 2016 due to higher throughput of palm oil products, automobile transhipments and complete-built-up vehicle imports, has also resumed its growth in 2H2020. This will be further supported by the exemption from the approved permit requirement for vehicle transhipments beginning April 2019. Northport plans to set up an auction centre for the Southeast Asia and Middle East markets, which will support its aim to become the region’s top automotive transhipment hub.

In 1H2020, revenue was lower by 7.5% y-o-y to RM299.1 million; the decline was cushioned by the 13% upward tariff revision on container handling in March 2019. Operating profit margin stood at 23.7% while finance-to-equity ratio was lower at 0.60x. The amount outstanding under the rated programmes stood at RM450 million as at end-September 2020. Northport has a capex requirement of RM163.7 million which will be funded internally. The stable outlook assumes that Northport’s credit profile will remain commensurate with the rating band on the back of improving operating performance as well as expectations of prudent dividend distribution and capex spending.

Contacts:
Lim Wooi Loon, +603-2717 2943/ wooiloon@marc.com.my; 
Taufiq Kamal, +603-2717 2951/ taufiq@marc.com.my.