JOHOR PORT BERHAD - 2024

Rating action          

MARC Ratings has affirmed its ratings on port operator Johor Port Berhad’s (JPB) Islamic Commercial Papers (ICP) Programme and Islamic Medium-Term Notes (IMTN) Programme of MARC-1_IS and AA-_IS, and revised the outlook on the long-term rating to positive from stable. The programmes have a combined aggregate limit of RM1.0 billion and the current outstanding comprising entirely the IMTNs stands at RM600 million.

Rationale

The outlook revision reflects the steady improvement in JPB’s credit profile, characterised by strengthening cash flow coverage metrics from reduced borrowings. JPB’s lengthy operational track record as a key gateway port in southern Malaysia, healthy cash flow generation and high operating margins continue to underpin the rating affirmation. These strengths notwithstanding, JPB is exposed to the vagaries of regional economic and trading activities.

During 1H2024, container handling volume rose by 18.6% y-o-y to 0.51 million twenty-foot equivalent units (TEUs) while conventional cargo handling increased by 2.0% y-o-y to 8.40 million freight weight tonnes (FWT). Both segments have benefitted from improving economic conditions; for container cargo handling, the mainstay products of food, industrial, and construction materials saw stronger demand while for transshipment cargo, there was increased growth from stronger business activities at the Pengerang Integrated Petroleum Complex, and diversion from regional ports due to congestion amid the ongoing Red Sea crisis. Accordingly, revenue and operating profit increased by 8.3% y-o-y to RM374.9 million and 9.8% to RM167.3 million in 1H2024. MARC Ratings expects that for full year 2024, JPB’s financial performance would be on an uptrend, with container and conventional cargo handling volume projected to increase above 1.0 million TEUs and to about 17 million FWT.

The rating agency notes that a capex programme amounting to about RM665.6 million that JPB plans to implement through 2027 would strengthen operational efficiency. Funded largely by internal cash, and borrowings of up to RM150 million in 2025, it will be mainly for expanding liquid jetty capacity, purchasing port equipment, and upgrading terminal operating and enterprise resource planning systems. Borrowings would increase to around RM750 million from RM599.7 million as at end-June 2024 with gross debt-to-equity (DE) ratio rising to around 0.60x from 0.48x. Leverage position is expected to broadly remain at this level over the foreseeable future.

MARC Ratings continues to observe that JPB maintains a moderate-to-strong liquidity position vis-à-vis its financial obligations despite being a key dividend contributor to parent MMC Port Holdings Sdn Bhd; dividend contribution has averaged RM120 million p.a. over the last five years. Cash balances stood at RM247.8 million as at end-June 2024. Given its strong cash flow generation, dividend payout over the next few years that is projected to increase modestly (2024: RM125.0 million; 2025: RM130.0 million) and considering the unutilised amounts under the rated programme, JPB has sizeable headroom to fund its operational and financial commitments. Nonetheless, the rating agency expects the port operator to broadly maintain its balance sheet structure.

Debt coverage measures are expected to remain strong after incorporating the new borrowing, assuming performance remains at the current level with pro forma cash flow from operations (CFO) debt coverage of 0.40x. During 1H2024, CFO interest and debt coverages stood at around 10.0x and 0.50x, on an annualised basis. If JPB broadly maintains its credit profile, including debt coverages, MARC Ratings would upgrade JPB’s long-term rating a notch to AA within the next 12 months.

Rating trajectory

Upside/downside scenario

The long-term rating will be upgraded over the next 12-18 months if JPB broadly maintains its improved credit profile, including debt coverages. Conversely, the rating outlook will be revised back to stable if group financial performance and leverage position substantially weakens from expectations.

Key strengths

• Key gateway port in southern Malaysia with long concession period
• Lengthy operational track record with steady port throughput handling volume
• Strong cash flow generation and high operating margin

Key risks/challenges

• Susceptible to regional trade activities
• Maintaining balance sheet strength by balancing funding requirements and dividend payouts