Monday, Jul 01, 2019
MARC has affirmed its AA+IS rating on Westports Malaysia Sdn Bhd’s (Westports) RM2.0 billion Sukuk Musharakah Programme with a stable outlook. Westports’ outstanding amount under the sukuk programme stood at RM1.5 billion as at June 25, 2019.
Westports’ strong position as a key port operator in the region, its consistently
high and stable profit margin as well as strong financial service coverage
continue to be key rating drivers. The rating is moderated by the increasing
competitive pressure arising from the evolving shipping industry landscape and by high
client concentration risk.
The stable outlook reflects MARC’s expectation that Westports will be able to weather the
challenging shipping industry landscape while maintaining its operational and
financial metrics at current levels. Downward rating pressure may
occur if cash flow from operations (CFO)-to-total debt consistently falls below 0.5x. Additionally, if debt-to-operating profit before interest, tax,
depreciation and amortisation were to rise above 2.5x or if any debt-funded port capacity expansion weakens its
leverage position, the rating would be pressured.
Westports’ port
is strategically located along the Straits of Malacca, one of the world’s
busiest shipping routes; it is equipped with container terminals and wharves that
cater to dry bulk, liquid bulk, break bulk, cement and roll on/roll off cargo
handling. MARC notes that Westports has continued to make significant investments in recent years to
upgrade its port operations with the current total container terminal handling
capacity standing at 14.0 million twenty-foot equivalent units (TEUs). Its
competitive position is supported by its draft limit of 17.5m and the use of
the latest 52m quay cranes that can accommodate ultra large
container vessels with capacities of 20,000 TEUs.
In 2H2018, Westports’ transhipment
volume rebounded strongly with a 15% y-o-y growth to 6.2 million TEUs from a
negative growth of 6% in 1H2018 as the impact from the changes in the shipping
alliances reached its tail end. The strong growth was also supported by some
front-loading shipment activities as exporters shifted products into the US ahead of the latest round
of tariffs effective September 24, 2018. The higher transhipment volume coupled
with healthy
growth in gateway volume led to overall throughput
container volume increase of 5.5% to 9.5 million TEUs (2017: 9.0 million TEUs) at end-2018.
At end-2018, excluding MFRS adjustments, overall operational revenue
would have increased to RM2.0 billion (2017: RM1.7 billion) on
the back of higher transhipment and gateway volume. For 2018, operating profit remained strong at RM782.3 million while its
profit margin rose to 48.5% in 2018 (2017: 43.4%). Westport’s throughput volume growth
continued in 1Q2019, registering q-o-q growth of 12.4%, leading to operational revenue growth
of 7.8% q-o-q to RM415.2 million.
Westports’ CFO also declined to RM690.6 million at end-2018 (2017: RM1,142.0 million), in part due to an increase in receivables.
Its trade receivables stood at 60 days of sales in 2018 compared to 45 days of
sales in 2014. However, the risk of non-collection of trade receivables
is mitigated by strength
of its clients’
profiles which comprise largely reputable shipping liners.
In 2018, free cash flow (FCF) narrowed to negative RM1.9 million (2017: negative RM114.4 million), largely on the back of lower capex spending amounting to RM209.8 million (2017: RM812.0 million). Westports incurred lower capex spending following the completion of construction of CT8 and CT9 in 2017. Its FCF could weaken in the near term once Westports commences construction of new terminal facilities. Westports registered a container terminal utilisation rate of 68% in 2018. MARC expects Westports to prudently manage its dividend distribution to maintain sufficient headroom to fund its terminal expansion. In 2018, Westports up streamed dividends amounting to RM455.2 million in (2017: RM445.8 million).
Contacts:
Lim Chi Ching, +603-2717 2963/ chiching@marc.com.my;
Ati Affira Kholid, +603-2717 2941/ affira@marc.com.my