Westports Malaysia Sdn Bhd - 2007

Major Rating Factors

Strengths 

• Strong competitive position lends resilience to Westports’ financial performance
• Solid operating track record
• Ample internal liquidity as well as access to external sources of liquidity
• Improving cash flow protection measures

Challenges/Risks  

• Operating in a highly competitive industry
• High capital intensity of port business

MARC has reaffirmed the rating of Westports Malaysia Sdn Bhd’s (Westports) (formerly known as Kelang Multi Terminal Sdn Bhd) RM350 million Floating Rate Notes at AA.  The rating outlook on the notes is stable. 

The rating reflects Westports’ consistently sound financial performance, its strategic location, and the growth prospects for port traffic.  The port benefits from the government’s efforts to make Port Klang a major load centre and hub for the region.  Westports, as the nation’s leading private seaport recorded a 17% increase in vessel call activity and a 26% year-on-year growth in container cargo handled in 2006.  The Company also achieved a higher number of twenty-foot equivalent units (TEU) from 2.91 million in 2005 to 3.67 million in 2006.  The healthy growth in container volume is facilitated by its favourable competitive position that is underpinned by its facilities and the quality of its services.  Additionally, the strategic alliance between Westports and Hutchison Port Holdings (HPH), a substantial shareholder, allows Westports to leverage HPH’s operational expertise and derive technology transfer benefits, which has contributed to its high productivity measures.  Westports’ ongoing sizable capital expansion programme will, in addition, bolster its future productivity and competitiveness.  Moderating the strengths are Westports’ extensive capital spending programme and the sensitivity of port traffic to changes in regional and domestic seaborne trade patterns and economic fundamentals.

Westports is one of the two port operators in Port Klang.  Westports’ competitive advantages over its close rivals include a 15-metre deep draft which can accommodate larger ships such as the super post-panamax vessels, its proximity to road and rail infrastructure, quality information technology (IT) support services, and its productivity.  Westports appears well-positioned to capture part of the region’s growing container transhipment trade, particularly with the growing levels of port congestion faced by some of Westports’ neighbouring ports.  At present, Westports has a capacity of 6 million TEUs for container cargoes and 13 million tonnes per annum for conventional cargoes. 

The strong financial performance of Westports was supported by favourable local and regional economic conditions.  Its shareholders’ fund has tripled since 2002 and continues to grow through earnings retention.  Westports’ revenue grew 22.68% in FY2006, of which 96.8% was derived from port operations and the remaining, from rental income.  In line with the higher revenue and lower financing costs, pre-tax profits rose by 42.3% during the same period.  Westports managed to maintain an operating margin exceeding 30% for the past five financial years despite its asset intensive nature.  Its return on assets which was mostly maintained in the range of 6% to 10% for the past five years exceeded 10% in year 2006.

In February 2007, Westports redeemed Tranche 3 of the FRNs amounting to RM70.0 million as scheduled. The current outstanding balance of the FRNs stands at RM160.0 million.