Published on 03 Jan 2023 – Published by RAM Rating Services Berhad
RAM Ratings has reaffirmed the AAA/Stable rating of Westports Malaysia Sdn Bhd’s (Westports or the Company) RM2.0 bil Sukuk Musharakah Programme (2011/2031).
The rating reflects the Company’s critical function as the operator of Malaysia’s largest container handling terminal and a key transhipment hub in the region (the Port) as well as its resilient financials. Westports’ competitive position is anchored by its strategic location along the Straits of Malacca – one of the world’s busiest shipping routes – combined with its strong operational capabilities and well-established relationship with international shipping liners. The Company’s concession under its Privatisation Agreement (PA) with the Port Klang Authority and the Government of Malaysia runs up to 2054.
Westports’ container throughput volume is largely resilient, though having felt the impact of supply chain disruptions during the pandemic, China’s continued lockdowns, and the recent deceleration of consumer demand and international trade. This is seen in the drop in its transhipment volume for 9M 2022 (-12.7% y-o-y). The increasing proportion of gateway cargo moderated the weakness in the transhipment segment, resulting in an overall throughput reduction of 5.9% y-o-y. We believe throughput volume growth over the next two years will likely be challenging, depending on macroeconomic conditions given the possibility of a global recession.
The Company’s financial metrics remained steady, supported by a favourable tariff structure and prudent cost management, with superior debt coverage indicators. Westports continues to explore growth opportunities, particularly via Westports 2.0 – an expansion of the Port which will entail the development of eight new container terminals. This will double the Port’s container handling capacity at a total cost of RM12.6 bil over the next three decades. The Company is in the process of finalising negotiations on the PA and commercial terms for Westports 2.0 with the government and relevant authorities. Discussions are expected to conclude by June 2023.
Given sizeable capital expenditure of up to RM4.8 bil between 2022 and 2027, to be funded by a mix of debt, internally generated funds and equity, Westports’ financial profile could moderate marginally over the next five years as financial leverage increases and reduces rating headroom. Accordingly, the Company will have to exercise prudence in the management of its balance sheet. In the near term, however, we anticipate its debt coverage and leverage indicators to remain commensurate with an AAA rating.
Like other ports, Westports faces high customer concentration risk and tariff pressure, with four shipping liners under the Ocean Alliance handling about half the Port’s total throughput. However, these are long-standing customers with continuous sizable volume contributions, mitigating somewhat the apparent concentration risk.