WESTPORTS MALAYSIA SDN BHD - 2016

MARC has affirmed its AA+_IS rating on Westports Malaysia Sdn Bhd’s (Westports) RM2.0 billion Sukuk Musyarakah Programme with a stable outlook.

In affirming the rating, the rating agency has considered the potential migration of container traffic volume by one of Westports’ major clients, CMA CGM SA (CMA CGM), to Pasir Panjang Terminal in Singapore. CMA CGM, which contributed 3.31 million twenty-foot equivalent units (TEU), or 37% of Westports’ total TEUs handled in 2015, is expected to move a portion of its existing traffic to Singapore following the setting up of a joint-venture with the Port of Singapore Authority. The impact on Westports’ business and financial performance from CMA CGM’s move at this juncture is limited given that any decrease in the liner’s transhipment throughput could be gradual and that a new shipping alliance set to launch by April 2017 could see some traffic being routed to Westports under a dual hub strategy which is likely to be pursued by the new alliance. MARC will monitor developments and take necessary rating action should CMA CGM’s migration have a stronger-than-expected impact on Westports’ performance.

Westports’ affirmed rating continues to be supported by its strong cash flow generating ability, stemming from a steady operational and sound productivity performance. The port retains a strong competitive position, underpinned by its strategic location along one of the world’s busiest shipping lanes. These strengths are moderated by Westports’ exposure to high client concentration risk and to the vagaries of the global shipping industry.

As at end-2015, Westports’ container handling capacity stood at 11 million TEUs, which is expected to increase by 2.5 million TEUs by end-2017. It remains the dominant port operator in Port Klang, which is ranked the 12th busiest container port globally. MARC views Westports’ continued investments in upgrading its port capacity and operations have been key in generating throughput growth and maintaining strong operating efficiency. The port achieved a throughput growth of 8.3% year-on-year (y-o-y) to 9.1 million TEUs in 2015, translating to a CAGR of 9.2% between 2011 and 2015. For 2015, the port utilisation rate improved to 82.3% from 76.1% in the previous year. The higher port utilisation rate contributed to slightly longer vessel waiting time. MARC expects the vessel waiting time to improve gradually with the commencement of phase one of container terminal 8 (CT8) in April 2016.

Westports’ financial performance continues to be driven by container throughput, which contributed to 83.5% of operational revenue of RM1.58 billion in 2015 (2014: 83.2%; RM1.50 billion). The increased TEU handled was on the back of its existing clients’ organic growth and increasing ad hoc transhipment calls. Cash flow from operations stood at a healthy RM688.6 million (2014: RM614.6 million) while free cash flow (FCF) recovered to RM39.4 million from deficits in previous years. The improvement in FCF was mainly on the back of lower capital expenditure despite upstreaming of higher dividends of RM394.1 million (2014: RM353.2 million). While Westports’ debt-to-equity ratio stood at a moderate 0.62 times at end-2015 (2014: 0.66 times), the rating agency expects the port operator to prudently manage its port expansion and debt levels. In 2016, management has budgeted RM750 million for expansion and maintenance capital expenses to be funded by internally generated funds and short-term borrowings. Westports’ outstanding amount under the sukuk programme is RM1.15 billion as at end-2015; its first two payments of RM50 million each are due in April 2021 and May 2021 respectively.

The outlook on Westports remains stable on expectations that the port operator will continue to maintain its operational and financial metrics at current levels. A prolonged economic downturn, reduction of port calls as a result of industry consolidation and/or erosion in its cash flow and leverage metrics would exert downward pressure on Westports’ rating.

Major Rating Factors

Strengths

• Strong operational and productivity performance;
• Supply-driven approach in container terminal expansion; and
• Dominant market position with large captive hinterland.

Challenges/Risks

• Concentrated clientele base;
• Consolidation in shipping industry may lead to loss of transhipment to other hubs; and
• Subdued regional and Malaysian economic growth.