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MARC affirms ratings on Westports Malaysia's Sukuk Musyarakah Programme.

MARC has affirmed its +IS rating on Westports Malaysia Sdn Bhd's (Westports) Sukuk Musyarakah Programme of up to MYR 2.0 billion with a stable outlook.

The rating reflects Westports' strong competitive position in transshipment services in the region, its strong operational track record and cash flow generation, said MARC in a statement. The rating is, however, moderated by the group's container throughput volumes' susceptibility to global trade trends, its reliance on a few clients to generate the bulk of its container throughput volumes as well as aggressive capital spending and high dividend payout policies.

Westports is the operator of a key terminal at Port Klang, Pulau Indah, under a 30-year concession expiring on August 31, 2024. The port, which is currently ranked as the second largest port in Malaysia, has undergone further port development works, particularly in the container handling segment, resulting in an increase in berth depth to 17.5 metres and container terminal capacity to 9.5 million twenty-foot equivalent units (TEU). The upgrades have enabled Westports to accommodate the world's largest ultra-large container vessel of up to 18,000 TEU. MARC views the successful fulfilment of the upgrade requirements for a further 30-year extension to Westports' existing concession as a credit positive.

MARC notes that despite slowing global trade in 2013, Westports recorded container throughput growth of 8.1 per cent (2012: 7.9 per cent). The growth was predominantly driven by the company's competitive pricing relative to the Port of Singapore and robust operational efficiency. The container handling segment remains the largest earnings contributor, accounting for 81.9 per cent of total revenue in 2013. However, Westports' client concentration remains high with CMA CGM Group accounting for 34.8 per cent of container throughput volume in 2013. MARC views that any significant weakening in the credit profiles of Westports' main customers would impact the group's credit risk. However, Westports' receivables ageing remains healthy with 93.8 per cent of its total receivables below 60 days as at December 31, 2013.

Westports' revenue excluding lease asset construction costs grew by 10.0 per cent to RM1.3 billion in 2013 (2012: RM1.2 billion) on the back of higher container handling throughput volume. Meanwhile, Westports' operating profit and pre-tax profit increased to RM566.7 million and RM519.4 million respectively (2012: RM485.0 million; RM435.3 million). The company's operating profit margin remains strong, although the increase to 42.0 per cent from 39.6 per cent in 2012 is due to a one-off reversal of quit rent. During the year, Westports declared a sizeable dividend of RM1.2 billion in conjunction with its parent Westports Holdings' initial public offering exercise in October 2013. As a result, Westports' distributable reserves declined to RM304.4 million from RM1.1 billion in 2012. Nonetheless, this was moderated by an equity injection of RM887 million from the shareholders via new shares subscription in 2013.

Westports' cash flow from operations (CFO) increased to RM685.6 million (2012: RM631.4 million). The company's debt service capacity as measured by its CFO interest coverage and CFO net debt coverage remained resilient at 17.32 times and 1.16 times (2012: 14.92 times and 1.59 times) respectively, supported by cash and cash equivalent of RM317.6 million as at December 31, 2013 (2012: RM304.9 million). Although Westports' total debt burden increased to RM900 million (2012: RM695 million), translating to debt-to-equity ratio of 0.57 times (2012: 0.47 times), MARC considers the leverage position well within expectations. The increased borrowings from a drawdown of RM450 million under the rated programme were utilised to part-finance the construction of container terminal 7 (CT7) and for working capital purposes. In 2013, Westports also redeemed the outstanding RM245 million from a different programme. MARC understands Westports intends to draw a further RM250 million under the rated programme to fund its projected capital spending of RM380 million in 2014.

The stable outlook reflects MARC's expectation that Westports will continue to maintain its competitive standing and credit metrics commensurate with the current ratings. Downward rating pressure could emerge in the event of a deterioration in the company's cash flow metrics and/or capital structure.

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Publication:CPI Financial
Date:May 19, 2014
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