MARC has affirmed its rating of AA-_IS on Penang Port Sdn Bhd’s (PPSB) Islamic Medium-Term Notes Issuance Programme of up to RM1.0 billion with a stable outlook.

The affirmed rating factors in PPSB’s strength as the operator of Penang Port, a key trade gateway port in northern Malaysia, in generating steady cash flow from handling container and conventional cargo in the region. Operating under a long-term concession agreement expiring on December 31, 2041, its port operations benefit from the expertise within its parent MMC group, a domestically well-established port operator and developer. Moderating the rating are PPSB’s high leverage position and the potential impact on its throughput volume from the prevailing global container shortage.

PPSB’s revenue remained stable at RM190.7 million in 1H2021 (1H2020: RM197.6 million), reflecting the recovery from the impact of the COVID-19 pandemic on its trading volumes. It registered container and cargo throughput volumes of 680,082 twenty-foot equivalent units (TEU) and 2.7 million MT in 1H2021 (1H2020: 679,688 TEU; 2.7 million MT). Operating profit declined to RM39.1 million (1H2020: RM50.8 million) mainly due to losses from its cruise and ferry operations. 

As a member of the MMC group of ports, Penang Port has been able to benefit from the group’s operating and cost efficiencies in procuring equipment, strengthening operations and managing its customer base. Over the medium term, PPSB’s earnings improvement would also be supported by the approval to increase container handling tariffs up to 35% effective October 2021, though the imposition will be done gradually over the next four years. Growth of its container operations could come from the gazettement of the new free commercial zone at the port in February 2021 and from tapping into the Bay of Bengal-East maritime route.

The recent easing of movement restrictions would also improve both its cruise and ferry operations. It has recently completed the RM95 million berth expansion of its cruise terminal, funded entirely with internally-generated funds. The remainder of the cruise terminal development costing up to RM55 million will be staggered in 2022-2023. We understand that capacity expansion at the container and conventional terminals has been put on hold. Its annual container capacity and conventional cargo capacity stood at 2.3 million TEUs and 10.8 million MT as at end-June 2021.

The outstanding RM1.0 billion rated sukuk is PPSB’s only borrowing; the sukuk will begin to amortise from December 2026 onwards when a RM200 million repayment is due. PPSB’s pre-dividend financial service cover ratio (FSCR) is projected to be 3.21x at end-2021 against the covenanted 1.75x. 

Umar Abdul Aziz, +603-2717 2962/ umar@marc.com.my; 

Taufiq Kamal, +603-2717 2951/ taufiq@marc.com.my.