RAM Ratings reaffirms Sabah Ports debt ratings

Published on 07 September 2011

RAM Ratings has reaffirmed the respective AA3 and AA3/P1 ratings of Sabah Ports Sdn Bhd’s (“Sabah Ports” or “the Company”) RM80 million Bai’ Bithaman Ajil Debt Securities (2007/2017) (“BaIDS”) and RM70 Million Murabahah Underwritten Notes Issuance Facility/Islamic Medium-Term Notes Facility (2007/2014) (“MUNIF/IMTN”); both long-term ratings have a stable outlook. 

Sabah Ports plays an important role in supporting Sabah’s economy as shipping is the most cost-effective method of transporting imports and exports, which constitute commodities such as palm oil and petroleum. While Sabah Ports’ first right of refusal with respect to all new port undertakings outside its port limits ended in 2009, we believe there is limited need for another major port as the existing facilities effectively cater to Sabah’s main population and economic centres. The Company’s strong operating track record further rules out the possibility of new port operators replacing the services it provides. 

Sabah Ports maintained its steady financials in fiscal 2010. Revenue increased 12.2% to RM211.68 million on the back of a steady rise in cargo volume handled. Profitability stayed strong as the Company registered a margin on adjusted operating profit before depreciation, interest and taxation of 58.4%, backed by ongoing cost-cutting initiatives. Adjusting for lease obligations, Sabah Ports’ debt level stood at RM557.91 million as at end-December 2010, which translated into a gearing ratio of around 1 time and a lease-adjusted funds from operations debt coverage (“FFODC”) ratio of 0.24 times. Looking forward, we expect the Company to maintain a sound balance sheet and steady debt-coverage measures over the next 5 years, with a projected average gearing ratio of 0.67 times and an FFODC ratio of 0.22 times. 

Meanwhile, the ratings are still moderated by the capital-intensive nature of Sabah Ports’ business and its sensitivity to economic cycles. On that note, the Company’s future capital commitments are expected to be largely covered by internal funds. While the Asian financial crisis (1997/98) and the more recent global financial slump (2008/09) had led to contractions in Sabah Ports’ cargo volumes, liquid cargo - which is generally more lucrative and accounts for around half of the Company’s annual throughput - had held steady, without any volume contraction.

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