FW: MARC AFFIRMS ITS AA+IS RATING ON WESTPORTS' RM2.0 BILLION SUKUK MUSYARAKAH PROGRAMME

 

 

P R E S S  A N N O U N C E M E N T

 

FOR IMMEDIATE RELEASE

 

MARC AFFIRMS ITS AA+_IS RATING ON WESTPORTS’ RM2.0 BILLION SUKUK MUSYARAKAH PROGRAMME

 

MARC has affirmed its AA+_IS rating on Westports Malaysia Sdn Bhd’s RM2.0 billion Sukuk Musyarakah Programme with a stable outlook.

 

Westports’ strong position as a key port operator in the region, consistently high and stable profit margin as well as strong financial service coverage continue to be key rating drivers. Moderating the rating is increasing competitive pressure arising from (i) the evolving shipping industry landscape, (ii) high client concentration risk and (iii) likelihood of negative impact on leverage position from port capacity expansion.

 

The stable outlook reflects MARC’s expectations that Westports will be able to weather the challenging shipping industry landscape while maintaining its operational and financial metrics at current levels. Downward pressure on the rating may occur if there is a cash flow generation mismatch to meet its financial obligations and/or if leverage metrics result in the CFO debt coverage falling below 0.5 times, debt-to-OPBITDA rising above 2.5 times and/or debt-to-equity rising above 0.7 times.

 

The port, which is strategically located along the Straits of Malacca, one of the world’s busiest shipping routes, is equipped with container terminals (CT) and wharves that cater to dry bulk, liquid bulk, break bulk, cement and roll on/roll off cargo handling. MARC notes that Westports has continued to make significant investments in recent years to upgrade its port operations with the current total container terminal handling capacity increasing to 14.0 million twenty-foot equivalent units (TEUs) following the completion of CT8 and CT9 in 2017. Its competitive position is supported by its draft limit of 17.5 metres and the use of the latest 52-metre quay cranes that can accommodate ultra large container ships (ULCS) with capacities of 20,000 TEUs.

 

As at end-2017, however, terminal utilisation rate declined to 64.5% against the effective available terminal capacity compared to 82.9% against 12 million TEUs terminal capacity in the preceding year. The decline was mainly due to a 9.3% contraction in its throughput container volume following the realignment of selected services by Westports’ two largest clients (CMA CGM of Ocean Alliance and United Arab Shipping Co. of THE Alliance) to Singapore. CMA CGM remained Westports’ largest client, despite its total TEUs declining approximately 34.2% to 2.2 million TEUs from 3.3 million TEUs in 2016. MARC regards the evolving shipping alliance landscape to continue to weigh on Westports’ overall growth prospects.

 

Although CMA CGM practices a dual hub policy in Singapore and Westports, the decline in container volume was not sufficiently cushioned by the expected improvement in transhipment volumes from the newly formed Ocean Alliance, of which CMA CGM is a member. This was due to the slower-than-expected phase-in of East-bound routes under Ocean Alliance. The rating agency notes that the implementation of the new tariff structure by September 2018, when rates are set to increase between 12.5% and 13.3% per container or transhipment, could also affect Westports’ growth. 

 

In 2017, Westports’ operational revenue declined by 5.4% y-o-y to RM1.71 billion, partly due to lower container throughput volume and the adoption of Malaysian Financial Reporting Standard 15 (MFRS 15). Its pre-tax profit was lower at 7.8% y-o-y to RM678.6 million. However, CFO improved to RM1,144.5 million on lower working capital requirements. Operating profit margin remains consistently high, ranging from 42.0% to 45.3% over the past five years; CFO debt coverage stood at a commendable 0.73 times (2016: 0.83 times).

 

In 1Q2018, Westports’ operational revenue stood at RM385.0 million (1Q2017: RM438.6 million). Against the backdrop of a challenging operating environment, MARC expects Westports to remain prudent in managing its liquidity needs considering the group’s aggressive dividend payout in 2017, which contributed to free cash flow turning negative to RM114.6 million.

 

Westports drew down RM350.0 million from the sukuk programme to part finance the construction of CT8 and CT9 in 2017. As at end-August 2017, Westports received government approval to further expand its container terminal facilities from CT10 to CT19 that will increase its total terminal handling capacity. To be undertaken in stages, the port’s future expansion plans will be able to accommodate 20,000 TEUs ULCS. The expansion is expected to be funded mainly by internally generated funds and borrowings, which could potentially increase its leverage position. As at end-2017, Westports’ debt-to-equity stood at 0.66 times.

 

Contacts: Chia Kah Yie, +603-2717 2961/ kahyie@marc.com.my; David Lee, +603-2717 2955/ david@marc.com.my

 

June 04, 2018

 

 [This announcement is available in MARC’s corporate homepage at http://www.marc.com.my]

--- DISCLAIMER ---

This communication is provided by Malaysian Rating Corporation Berhad (MARC) on the basis of information believed by MARC to be accurate and reliable as derived from publicly available sources or provided by the rated entity or its agents. MARC, however, has not independently verified such information and makes no representation as to the accuracy or completeness of such information. Any assignment of a credit rating by MARC is solely to be construed as a statement of its opinion and not a statement of fact. A credit rating is not a recommendation to buy, sell, or hold any security.

 

© 2018 Malaysian Rating Corporation Berhad (364803-V)

 

 

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