CREDIT ANALYSIS REPORT

JOHOR PORT BERHAD - 2022

Report ID 6053890046901 Popularity 62 views 16 downloads 
Report Date Sep 2022 Product  
Company / Issuer Johor Port Berhad Sector Infrastructure & Utilities - Port/Airport
Price (RM)
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Rationale
Rating action     
MARC Ratings has assigned ratings of MARC-1IS /AA-IS to port operator Johor Port Berhad’s (JPB) Islamic Commercial Papers (ICP) Programme and Islamic Medium-Term Notes (IMTN) Programme with a combined aggregate limit of RM1.0 billion. The long-term rating carries a stable outlook. The company operates Johor Port, a gateway port in Pasir Gudang, under a concession agreement expiring on December 31, 2052. 

Rationale     
The assigned ratings are mainly driven by Johor Port’s established position as an integral port for southern Malaysia and its long operating track record in conventional and container cargo services. Its ability to generate strong and steady operating cash flows is a key rating consideration. The rating is moderated by its exposure to the vagaries of regional trade activities, and uncertain timelines on tariff revisions. 

Commencing operations in 1977 and sited on 1,000 acres including a 660-acre free zone area, Johor Port with 24 berths across its 4.9-km length provides bulk and break bulk terminal, liquid terminal, container terminal, and warehousing facilities. It has one of the largest palm oil terminal storage capacities at 460,000 MT, and remains a key import/export point for other commodities in the region. Given the scope of its business activities, the company has been able to generate steady performance. For 1H2022, JPB recorded higher revenue and operating profit of RM326.9 million and RM125.9 million due to improved economic activities following the lifting of pandemic restrictions and a revised tariff implementation effective October 1, 2021 (1H2021: RM278.6 million; RM94.2 million). Even so, we note that the impact of the pandemic closures has been modest due to its position as a key port for essential goods.  

As at end-June 2022, the port had container capacity of 1.5 million twenty-foot equivalent units (TEUs) and 24.0 million freight weight tonnage (FWT) of conventional cargo; the port handled 0.9 million TEUs and 18.4 million FWT in 2021. Near-term capex totalling RM326.0 million involves extending its liquid jetty, strengthening terminals, and upgrading port equipment. The capex is expected to be funded through a mixture of internal funds and borrowings.  

Cash flow from operations (CFO) of RM242 million in 2021 translated to a CFO interest coverage of 7.17x. CFO is expected to remain strong on the back of a healthy earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin of about 55% over the foreseeable future. The bulk of total borrowings of about RM770 million as at end-June 2022 are expected to be refinanced with proceeds from the issuance. Leverage ratio is expected to remain at around 0.7x in the near term. While we note that JPB has been a key dividend contributor to parent MMC Port Holdings Sdn Bhd (MMC Ports), we expect the company to maintain a balance between dividend distribution and its internal requirement. MARC Ratings notes that there is no requirement for capital dredging to date except at the area for the planned new liquid jetties. Over the near term, Johor Port will undertake maintenance dredging only by end-2022 at an estimated cost of RM12 million, after which, the next maintenance dredging will take place around 2026.  

Rating outlook     
The stable rating outlook assumes JPB’s financial performance to remain supportive of its debt metrics.      

Rating trajectory     

Upside scenario     
Any upgrade would be primarily driven by sustained profitability and improvement in balance sheet structure, in particular leverage being below 0.5x. 

Downside scenario     
The ratings could come under pressure if performance were to deteriorate from expectations and/or if leverage were to increase sharply from forecast. 

Key strengths   
  • Key gateway port for southern Malaysia with long concession period     
  • Long operating track record in conventional and container cargo handling     
  • Matured port operations with low-to-moderate capex requirement 
Key risks  
  • Potentially susceptible to regional trade activities      
  • Balancing dividend distribution and internal requirement 
     


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