CREDIT ANALYSIS REPORT

PENANG PORT SDN BHD - 2021

Report ID 60538900396 Popularity 79 views 25 downloads 
Report Date Nov 2021 Product  
Company / Issuer Penang Port Sdn Bhd Sector Infrastructure & Utilities - Port/Airport
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Rationale
Rating action    
MARC 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. 

Rationale     
The affirmed rating continues to factor in PPSB’s strength as the operator of Penang Port, a key trade gateway port in northern Malaysia, in generating steady cash flow from handling container and conventional cargo in the region. Operating under a long-term concession agreement expiring on December 31, 2041, its port operations benefit from the expertise within its parent MMC group, 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 the prevailing global container shortage. 

PPSB’s revenue remained stable at RM190.7 million in 1H2021 (1H2020: RM197.6 million), reflecting the recovery from the impact of the COVID-19 pandemic on its trading volumes. It registered container and cargo throughput volumes at 680,082 twenty-foot equivalent units (TEU) and 2.7 million MT in 1H2021 (1H2020: 679,688 TEU; 2.7 million MT). Operating profit declined to RM39.1 million (1H2020: RM50.8 million) mainly due to losses from its cruise and ferry operations. 

As a member of the MMC group of ports, PPSB has been able to benefit from the group’s operating and cost efficiencies in procuring equipment, strengthening operations and managing its customer base. Over the medium term, PPSB’s earnings improvement would also be supported by the approval to increase container handling tariffs up to 35% effective October 2021, though the imposition will be done gradually over the next four years. Growth of its container operations could come from the gazettement of a new free commercial zone at the port in February 2021 and from tapping into the Bay of Bengal-East maritime route.

The recent easing of pandemic-induced movement restrictions would also improve both its ferry and cruise operations. It has recently completed the RM95 million berth expansion of its cruise terminal, funded entirely with internally-generated funds. The remainder of the cruise terminal development costing up to RM55 million will be staggered throughout 2022-2023. We understand that capacity expansion at the container and conventional terminals has been put on hold. As at end-June 2021, its annual container capacity stood at 2.3 million TEUs, while its conventional cargo terminal which includes facilities for dry, liquid and break-bulk cargo, boasted a total capacity of 10.8 million MT.
The outstanding RM1.0 billion rated sukuk is PPSB’s only borrowing; the sukuk will begin to amortise from December 2026 onwards when the first RM200 million is due. Debt-to-equity (DE) ratio stood at 1.78x as at end-June 2021. PPSB’s pre-dividend financial service cover ratio (FSCR) is projected to be 3.21x at end-2021 against the covenanted 1.75x. 

Rating outlook
The stable outlook incorporates our view that PPSB would broadly maintain its performance and credit metrics, supported by an uptick in the port’s handling volumes following the reopening of economic activities.

Rating trajectory

Upside scenario     
No upgrade is envisaged over the next 12 months. On a longer term, any upgrade would consider sustained improvement in cash flow and debt metrics. 

Downside scenario     
The rating and/or outlook could come under pressure if PPSB’s performance were to deteriorate from expectations and/or if leverage were to increase on higher borrowings to fund activities that may not be earnings accretive in the near term.

Key strengths
Key trade gateway port in northern Malaysia
Established track record in container and conventional cargo handling
Benefits from expertise in port operations within the MMC group

Key risks
High leverage position
Potential impact on trade volumes from global container shortage



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