MARC Ratings has affirmed its rating of AA-_IS on Penang Port Sdn Bhd’s (PPSB) Islamic Medium-Term Notes Issuance Programme of up to RM1.0 billion with a stable outlook.

The rating affirmation incorporates PPSB’s strength as the operator of Penang Port, a key trade gateway port in northern Peninsular Malaysia, and its cash flow generation ability from handling container and conventional cargo in the region. Operating under a long-term concession agreement expiring on December 31, 2041, its port operations also benefit from the expertise within its parent group MMC Port Holdings Sdn Bhd, a domestically well-established port operator and developer. Moderating the rating are PPSB’s high leverage position and the potential impact on its throughput volume from uncertain economic growth and geopolitical events.

PPSB’s revenue increased to RM187.9 million in 5M2022 (5M2021: RM159.5 million), driven by higher contribution from the container segment following an increase in tariffs effective October 2021. As a result, pre-tax profit improved to RM21.7 million (5M2021: RM13.6 million). Throughput volumes for both container and conventional cargo declined to 537,426 twenty-foot equivalent units (TEU) and 2.2 million MT in 5M2022 (5M2021: 569,868 TEUs; 2.4 million MT). The container throughput was impacted mainly by service cancellations by container operators.

Over the near term, throughput volume could be supported by economic recovery and easing of supply chain disruptions. Earnings will also benefit from an expected rebound from its cruise operations with resumption of international cruises beginning early July 2022. The future phases of the cruise terminal expansion worth about RM65 million could be undertaken in 2023-2026, depending on cruise passenger recovery. We understand that PPSB’s capex on the port’s infrastructure could partly be deferred to be in line with capacity requirement and would be funded through internally-generated funds.

Borrowings remained stable at RM1.02 billion as at end-May 2022, comprising almost entirely the outstanding rated sukuk; the sukuk will begin to amortise from December 2026 onwards when the first RM200 million is due. PPSB’s finance service cover ratio was registered at 2.61x as at end-June 2022, and is expected to remain healthy above the covenanted 1.75x over the medium term.