MARC Ratings has affirmed its AA-IS rating on port operator Pelabuhan Tanjung Pelepas Sdn Bhd’s Islamic Medium-Term Notes (Sukuk Murabahah Programme) and revised the rating outlook to positive from stable.
The outlook revision factors in PTP’s steadily improving credit profile, reflected by stronger cash flow generation that has led to improvement in debt and interest coverages in recent years. The improvement is on the back of strong container handling growth, reflected by a notable rise in throughput volume and demonstrated resilience to recent economic upheavals brought on by the impact of the pandemic and geopolitical tensions.
PTP’s strong competitive position as a key transhipment container port in the region, underpinned by continued investments in improving port efficiency, remains a key rating driver. Demonstrated support from shareholders MMC Port Holdings Sdn Bhd (70%), and Netherland-based APM Terminals B.V. (30%), both of which have established track records and expertise in port operations, is a rating factor.
Revenue grew sharply to RM1.7 billion in 2021 (unaudited) (2020: RM1.5 billion) on the back of a 13.7% y-o-y growth in container handling volume to 11.2 million twenty-foot equivalent units (TEU). The performance also benefitted from a tariff increase in October 2021. The rebound in global trade since 2H2020 that is expected to continue as the global economy recovers from pandemic-induced closures should drive container demand. Nonetheless, rising geopolitical risk from the Ukraine-Russia war could cloud the prospects for global trade, although PTP has shown resilience to global trade disruptions in the recent past.
Operating profit margin rose to 36.0% (2020 31.8%), reflecting gains in operating efficiency from continued investments in port infrastructure. Completion of capital dredging works in January 2021 to a depth of 18.5m and the usage of Super Post-Panamax cranes for ultra large container vessels have enabled the berthing of the largest container vessel at its port.
MARC Ratings views increased investments in port equipment and terminal vehicles would further enhance efficiency. PTP will expand its container yard and free zone area, and undertake other investments; it has earmarked a capex of RM1.3 billion in 2022-2023 that will be met from internally generated funds. Strong cash flow from operations (CFO), which rose to RM941.6 million in 2021, provides headroom for capex as well as meeting its financial obligations; CFO interest and debt coverages improved to 10.12x and 0.36x (2020: 6.28x; 0.26x).
Borrowings declined to RM2.3 billion as at end-2021 (end-2020: RM2.5 billion) and accordingly debt-to-equity (DE) and net DE ratios were lower at 0.90x and 0.63x (end-2020: 1.02x; 0.74x). In the absence of large borrowing maturities in 2022–2024 and with sizeable cash balances, PTP has strong financial flexibility.
Given the contribution from Maersk and partner Mediterranean Shipping Company (MSC) in the 2M Alliance accounted for more than 70% of revenue and volume in 2021, PTP remains exposed to concentration risk. We view Maersk’s indirect interest in PTP through APM Terminals and the port’s position as the liner’s largest transhipment hub substantially mitigate this risk.