[RAM] RAM Ratings reaffirms AA1(s)/Stable rating of Samalaju's sukuk

RAM Ratings has reaffirmed the AA1(s)/Stable rating of Samalaju Industrial Port Sdn Bhd’s (Samalaju or the Company) Sukuk Murabahah Programme of up to RM950 mil (2015/2036) (the Sukuk). The rating is underpinned by an unconditional and irrevocable corporate guarantee from Samalaju’s parent, Bintulu Port Holdings Berhad (BPHB, rated AA1/Stable/P1). 

Samalaju Port (the Port) plays an important role as a dedicated port and logistical hub for the tenants of Samalaju Industrial Park (the Park), which forms part of the Sarawak Corridor of Renewable Energy (SCORE). Following the commencement of operations at Phase 1 of Samalaju Port on 6 June 2017, the Port has seen encouraging growth in cargo throughput volumes, with 4.94 mil tonnes handled in 2019 (2018: 4.22 mil tonnes). In 1H 2020, cargo volume declined 8.1% y-o-y to 3.37 mil tonnes, weighed down by lower cargo demand amid the COVID-19 outbreak. Full-year cargo volume is envisaged to dip to 4.50 mil-4.60 mil tonnes in 2020. We expect the Port to recover and experience steady growth from 2021 onwards, backed by expansions undertaken by key existing and new customers. 

Stripping off revenue from construction services, Samalaju’s top line spiked 12.9% y-o-y to RM114.72 mil in FY Dec 2019 (FY Dec 2018: RM101.61 mil), mainly attributable to higher throughput from the Company’s key customers, Press Metal Bintulu Sdn Bhd and OM Materials (Sarawak) Sdn Bhd. However, the Company still incurred a pre-tax loss due to increased depreciation charges and finance costs after the completion of the Port. The Company’s earnings remained depressed by the Port’s utilisation rate of only 18.7% at this juncture. Looking ahead, Samalaju is poised to benefit from the anticipated expansion of the Port’s major customers in the medium term. As such, we expect the Company’s adjusted funds from operations debt coverage ratio to hover around 0.03 times on average while its adjusted gearing ratio will peak at 3.08 times over the next five years.

Samalaju is subject to customer concentration risk as its business hinges solely on the Park’s tenants. Demand at the Port is currently spurred by four customers – Press Metal, OM Materials, Sakura Ferroalloys Sdn Bhd and Pertama Ferroalloys Sdn Bhd. Additionally, we anticipate that Malaysian Phosphate Additives Sdn Bhd (MPA) – an expected incoming customer of Samalaju Port – will register a cargo throughput of 0.53 mil tonnes in 2021 under our stress scenario, which assumes a slower ramp-up by MPA. Any severe deterioration in the business and/or financial profiles of the said entities may affect Samalaju’s performance. Barring extreme shifts in economic conditions, the risk associated with the potential departure of any of these customers is moderated by their significant investments in setting up facilities at the Park. 

Notably, the Sarawak state government plays a role in determining Samalaju’s strategic direction and is represented on the Company’s board. By extension, regulatory oversight of the Port rests with the Samalaju Port Authority, a state statutory body. In view of BPHB’s solid relationship with the Government of Malaysia – given the latter’s interests in BPHB through various government agencies, the state government and Petronas – the federal and state governments are perceived to be strongly incentivised to provide the Company with financial assistance. This will facilitate the success of the SCORE while ensuring Samalaju meets its financial and operational obligations. We believe the Company will continue to derive financial flexibility from BPHB as well as the federal and state governments.


Analytical contact
Aw Wei Xuan
(603) 3385 2506
weixuan@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my