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Credit Rating: Unrated
International Container Terminal Services Inc
- Sector: Transportation
- Sub Sector: Shipping and Infrastructure
- Country: Philippines
- Bond: ICTPM 3.5 31
- Indicative Yield-to-Maturity (YTM): 4.95%
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): Unrated
Detailed Information
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Fundamental View
AS OF 12 Aug 2024- We expect ICTSI to remain resilient amid global growth slowdown fears owing to inorganic contributions, yield improvements, and strong cost control.
- ICTSI has steadily deleveraged over the past 5 years which we see as prudent financial management. Yet management’s recent lean towards growth at the expense of deleveraging could restrain improvements in credit metrics.
- While ICTSI is exposed to material EM-related geopolitical risks, we think its geographically diversified revenue base across 20 countries limits country-specific risks.
- While sizable capex and high dividend payouts could strain ICTSI’s credit profile, we take comfort in ICTSI’s robust operating cash flow generation.
Business Description
AS OF 12 Aug 2024- ICTSI develops and operates common user container terminals, with a focus on those within Origin and Destination (O&D) ports based in emerging markets.
- ICTSI provides integrated ports services that facilitate the receiving, handling and storage of cargo. These are broadly split into four streams: vessel charges (i.e. services relating to moving cargo on and off ships), yard charges (i.e. services relating to moving cargo in the container and storage yards), storage fees (i.e. services relating to cargo and container storage), and other ancillary fees.
- ICTSI currently operates across 32 port concessions in 19 countries. As of end-FY23, ICTSI's revenues are well diversified across the Philippines (27% of total), Other Asia (14%), EMEA (20%) and the Americas (39%).
- ICTSI operates its container terminals under long-dated concession agreements (typically ~25 years) with the relevant local port authorities or governments. For some concessions, fees charged to customers are regulated by the authorities that prescribe maximum price limits and, in some cases, allow for CPI-linked tariff hikes. For other concessions, fees charged are unregulated and allow for greater price-setting flexibility and volatility too.
- ICTSI is required to make periodic fee payments to the respective authorities for the right to operate the concessions. These payments are typically a combination of fixed charges and variable charges based on cargo traffic volume or gross revenues.
Risk & Catalysts
AS OF 12 Aug 2024- ICTSI is exposed to material EM-related geopolitical, regulatory and operating risks. That said, we think the impact is mitigated by its geographically diversified revenue base across 20 countries that limits country-specific risks.
- Being an EM-focused port container terminal operator, ICTSI’s bonds tend to experience greater volatility from exogenous events.
- Growing capex tendencies and high dividend payouts could strain ICTSI’s free cash flows and credit metrics, though we think the impact is mitigated by ICTSI’s robust operating cash flow generation.
- While ICTSI is exposed to FX depreciation risks as most of its revenues and cash expenses are in EM currencies, natural hedging has been fairly effective thus far.
Key Metric
AS OF 12 Aug 2024| $ mn | FY21 | FY22 | FY23 | 1H23 | 1H24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 73.7% | 71.9% | 73.0% | 76.0% | 74.3% |
| Net Debt to Book Cap | 62.2% | 58.2% | 61.0% | 66.2% | 59.4% |
| Debt/Total Equity | 279.7% | 255.3% | 269.9% | 317.1% | 289.2% |
| Debt/Total Assets | 67.5% | 62.5% | 60.3% | 62.6% | 60.7% |
| Gross Leverage | 3.7x | 3.1x | 2.9x | 3.0x | 2.7x |
| Net Leverage | 3.1x | 2.5x | 2.4x | 2.6x | 2.2x |
| Interest Coverage | 3.9x | 4.6x | 4.4x | 4.5x | 4.6x |
| EBITDA Margin | 61.1% | 62.8% | 63.0% | 62.6% | 65.4% |
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CreditSight View Comment
AS OF 12 Aug 2024We have a Market perform recommendation on ICTSI. Its 2030 and 2031 trade 8 bp wider than PLDT and 20 bp tighter than Globe Telecom, which we see as fair. We expect ICTSI’s credit metrics could remain stable through 2H24 (end-1H24: net leverage 2.2x) as steady yield improvements and sturdy domestic trade activity could outweigh high capex and M&A appetite. While ICTSI is exposed to EM-related geopolitical and operating risks (notably in the Mid East and Russia-Ukraine), we believe these are mitigated by its highly geographically diversified revenues. We also expect ICTSI’s robust cash-generative business to drive positive free cash flows, even amid higher organic capex, higher M&A appetite, and persistent dividends.
Recommendation Reviewed: August 12, 2024
Recommendation Changed: August 16, 2023
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