MARC Ratings has affirmed its ratings of MARC-1IS/AA-IS on Johor Port Berhad’s (JPB) Islamic Commercial Papers (ICP) Programme and Islamic Medium-Term Notes (IMTN) Programme with a combined limit of RM1.0 billion. The long-term rating carries a stable outlook. JPB operates Johor Port, a gateway port in Pasir Gudang, under a concession agreement expiring on March 23, 2055.
The rating affirmation is mainly driven by JPB’s lengthy track record as the operator of the key gateway port in southern Malaysia, underpinned by steady throughput volume that has enabled strong cash flow generation. The key moderating factor to the rating is JPB’s exposure to the vagaries of regional economic and trade activities.
The port operator has continued to perform within expectations, benefitting from full year implementation of the port tariff hike in October 2021. Revenue grew 16.0% y-o-y to RM675.2 million in 2022 on the back of higher conventional cargo of 19.06 million freight weight tonnes (FWT) and marginally lower containerised cargo of 918,598 twenty-foot equivalent units (TEUs) (2021: 18.38 million FWT; 937,206 TEUs). The higher conventional cargo volume was mainly driven by dry bulk cargo including palm kernel seeds and copper concentrates. The container handling volume was affected by some changes in global shipping routes due to the ongoing Russia-Ukraine conflict. Operating profit margin has been steady at around 40%. Over the near term, overall throughput volumes for conventional and container cargo are expected to remain largely in line with the performance in 2022.
JPB is undertaking structural improvements to its conventional terminal and expanding its liquid jetty in 2024, at a cost amounting to RM340 million of the total planned capex of RM760 million through 2027. JPB will increase its current IMTN borrowings of RM600 million to RM800 million to part fund the capex programme. Debt-to-equity is projected to increase to 0.68x from 0.54x as at 1Q2023. JPB retains the flexibility to defer capex plans depending on expected throughput volumes.
Cash flow from operations (CFO) of RM295.6 million translated to CFO interest and debt coverages of 9.51x and 0.35x in 2022. With EBITDA margin of about 55%, CFO is expected to remain strong, providing healthy interest and debt coverage. Free cash flow, however, is projected to be negative in 2024 due to the capex but would return to positive in the following financial year. As a key dividend contributor to parent MMC Port Holdings Sdn Bhd with an average annual dividend payout of about RM110 million over the last five years, JPB is expected to maintain a balance between dividend distribution and its operational and financial requirements.