CREDIT ANALYSIS REPORT

PELABUHAN TANJUNG PELEPAS SDN BHD - 2022

Report ID 605389004690 Popularity 92 views 31 downloads 
Report Date Apr 2022 Product  
Company / Issuer Pelabuhan Tanjung Pelepas Sdn Bhd Sector Infrastructure & Utilities - Port/Airport
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Rationale
Rating action     
MARC Ratings has affirmed its AA-IS rating on port operator Pelabuhan Tanjung Pelepas Sdn Bhd’s (PTP) Islamic Medium-Term Notes (Sukuk Murabahah Programme). The rating outlook has been revised to positive from stable.

Rationale     
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 (MMC Port) (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. MMC Port owns and operates several key domestic ports in Malaysia, of which PTP is the largest; while APM Terminals, owned by one of the world’s largest container liners A.P. Moller-Maersk A/S (Maersk), has interests in more than 70 port facilities globally. 

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. This is expected to grow by 2%-4% in 2022, according to Maersk. Nonetheless, rising geopolitical risk from the Ukraine-Russia war could cloud the prospects for global trade in the near term 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 further 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 capex of RM1.3 billion in 2022-2023 that will be met by 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 in 2021 (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 accounting 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. 

Rating outlook     
The positive outlook is premised on the port’s stronger cash flow generation from its improved operational performance which has resulted in stronger credit metrics. 

Rating trajectory

Upside scenario     
The rating would be upgraded within the next 12 months if PTP sustains its current business and financial profile that is commensurate with the AA rating band, particularly its debt metrics.

Downside scenario     
The outlook could revert to stable if PTP’s performance declines from expectation as a result of negative shifts in the prospects of the shipping industry and/or if cash flow metrics were to decline sharply.

Key strengths
Strategic location on key global trading route
Benefits from shareholders’ expertise in port operations
Largest transhipment hub for A. P. Moller Maersk A/S
Strong cash flow generation and improved debt metrics

Key risks
Impact on global trade from geopolitical events
Competition from regional port operators


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