CREDIT ANALYSIS REPORT

PELABUHAN TANJUNG PELEPAS SDN BHD - 2021

Report ID 605405 Popularity 951 views 200 downloads 
Report Date Mar 2021 Product  
Company / Issuer Pelabuhan Tanjung Pelepas Sdn Bhd Sector Infrastructure & Utilities - Port/Airport
Price (RM)
Normal: RM500.00        
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Rationale
Rating action     
MARC 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 is stable. The rating has considered the increase in PTP’s programme limit to RM2.15 billion from RM1.9 billion.

Rationale     
The affirmed rating is mainly driven by PTP’s strong position as a key transhipment container port in the region which has enabled it to generate healthy cash flow that has remained supportive of its financial metrics. The rating also incorporates support from key shareholders MMC Port Holdings Sdn Bhd (70%), and Netherland-based APM Terminals B.V. (30%) which have established track records and expertise in port operations that have benefited PTP. MMC Port owns and operates several key domestic ports in Malaysia, of which PTP is the largest; APM Terminals, owned by one of the world’s largest container liners A.P. Moller-Mærsk S/A  (Mærsk), has interests in more than 70 port facilities globally. These strengths have enabled PTP to weather the often-challenging container shipping environment, characterised by intense competition from regional port operators.

PTP’s financial performance held steady in 2020, partly due to its strong pre-pandemic performance in 1Q2020, and partly to a strong rebound in container handling volume in the third and fourth quarters. For 2020, container handling volume grew 8.48% y-o-y to 9.85 million twenty-foot equivalent units (TEU), benefitting from the higher-than-expected recovery in the Asia-Europe route and from the diversion of additional volume from neighbouring ports. Maersk continued to use PTP as their preferred regional hub to consolidate more regional cargos from Singapore and other ports to maximise their vessel utilisation. Similarly, the Mediterranean Shipping Company (MSC) also moved more cargo from Singapore and other regional ports into PTP. Both Mærsk and partner MSC in the 2M Alliance accounted for about 87% of its TEU handling volume in 2020, posing significant concentration risk. We believe that this risk is substantially mitigated by   Mærsk’s interest in PTP and the port’s position as the liner’s largest transhipment hub.

For 9M2020, PTP registered higher y-o-y revenue and operating profit of RM1.05 billion and RM332.6 million. Its operating profit margin improved to 31.8% at end-9M2020 (FY2019: 28.6%), benefitting from ongoing cost efficiency measures. At end-2020, borrowings declined to RM2.53 billion from RM2.64 billion at end-2019 and are expected to reduce by RM155 million by end 2021 through repayments of two term-loan facilities. The balance of borrowings at end-2021 will comprise of RM2.15 billion PTP rated sukuk and RM240 million government-guaranteed sukuk. From 2022 to 2024, the level of borrowings is expected to remain unchanged. The rated sukuk will be repaid progressively from 2025 to 2030 while the government-guaranteed sukuk will be repaid from 2028 to 2033. PTP’s capex in the medium term will be funded by internally generated funds. It plans to invest up to RM2.3  billion mainly in port equipment over the next five years. It has a capex of RM2.3 billion in the medium term which will be largely funded internally. Gross and net adjusted debt-to-equity (DE) ratios stood at 1.02x and 0.72x at end-9M2020. 

Rating outlook     
The stable rating outlook assumes that PTP’s credit profile will remain commensurate with the rating band, supported by a steady operating performance, capex spending that is in line with projections and prudent dividend  distribution.

Rating trajectory

Upside scenario     
Its high leverage position is a limiting factor to any imminent rating upgrade. Should gross DE decline to below 0.7x and net DE be around 0.5x while maintaining key profitability metrics, the rating could be considered for an upgrade.

Downside scenario     
Downward pressure could occur if liquidity weakens substantially and/or borrowings increase higher than projected such that leverage ratios worsen significantly from current levels.

Major Rating Factors

Key strengths
Strategic location on key global trading route;
Benefits from shareholders’ expertise in port operations; and
Healthy cash flow generation.
Key risks
Impact on global trade from pandemic or geopolitical events; and
Stiff competition from regional port operators.


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