MARC Ratings has affirmed its rating of AA-_IS on MMC Port Holdings Sdn Bhd’s RM1.0 billion Sukuk Murabahah Programme with a stable outlook.

The rating affirmation is driven by the group’s strong competitive position and well-established operational track record of its port operators in providing transshipment and gateway services. The port operators’ healthy cash flow generation, which stems from the sizeable throughput volume, remains supportive of meeting their financial obligations. Moderating the rating is the impact on throughput volume from potential global economic slowdown and supply chain disruptions from geopolitical risks.

MMC Port is among the top 10 global port operators and has five ports — Port of Tanjung Pelepas (PTP), Northport, Penang Port, Johor Port, and Tanjung Bruas Port — with a combined container handling capacity of 21.5 million twenty-foot equivalent units (TEUs). Operating under long-term concessions, the ports have benefitted from their strategic location along the Malacca Straits. In the south, PTP is a major transshipment hub for the Asia-North Europe and Asia-North America routes, while Johor Port serves as an import and export gateway. In the central region, Northport manages container, conventional, and automotive roll-on/roll-off (ro-ro) handling as well as associated logistics and marine services. In the north, Penang Port is the sole gateway port providing handling capabilities for the region.

As a non-operating holding company, MMC Port relies on dividends from its port operating subsidiaries. For 1H2023, it recorded revenue of RM60.4 million. Borrowings remained at RM1.0 billion (comprising the rated sukuk) as at end-June 2023; the first sukuk repayment of RM200 million is only due in April 2027, providing sufficient time for the holding company to build its liquidity buffer. On a consolidated basis, MMC Port recorded 3.8% y-o-y lower container volume of 7.6 million TEUs. Throughput volume for conventional services declined by 6.7% y-o-y to 16.7 million freight weight tonnage (FWT), mainly weighed down by Johor Port’s lower handling volume. 

Group operating profit margin remained strong at 30.0%, supported by cost management initiatives. Consolidated borrowings declined slightly to RM5.4 billion, translating to gross and net debt-to-equity (DE) ratios of 1.0x and 0.69x as at end-June 2023 (1H2022: RM5.6 billion; 1.13x; 0.75x). MMC Port has a planned capex of about RM1.3 billion for 2024, the bulk of which will be accounted for by PTP (RM630 million) and Northport (RM300 million), and will be funded at the respective port operators’ levels. This would alleviate any funding requirement from the holding company. 

The stable outlook reflects our expectations that MMC Port will continue to benefit from the performance growth of ports in its portfolio through sustained strong operations.

Any upgrade would stem from sustained improvement in group performance and balance sheet structure, in particular a downward trend in leverage position of below 0.7x.

The rating could come under pressure if a sharp rise in group and/or holding company borrowings negatively impacts cash flow metrics. Substantial dividend payouts that weaken liquidity may also impact the rating.