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Sub-sector: Shipping and Infrastructure
International Container Terminal Services (ICTSI)
- Sector: Transportation
- Sub Sector: Shipping and Infrastructure
- Country: Philippines
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Fundamental View
AS OF 10 May 2023We believe ICTSI’s FY23 credit metrics could improve even amid growth slowdown concerns, owing to anticipated yield improvements, inorganic EBITDA accretion and China’s post-pandemic reopening.
ICTSI has deleveraged consistently over the past 5 years, which is indicative of prudent financial management.
While ICTSI is exposed to material EM-related geopolitical, regulatory and operating risks, we think the impact is mitigated by its geographically diversified revenue base across 20 countries that limits country-specific risks.
ICTSI’s bonds tend to experience greater volatility from exogenous events.
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 10 May 2023- 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 33 port concessions in 20 countries. As of end-FY22, ICTSI's revenues are well diversified across the Philippines (34% of total), Other Asia (12%), EMEA (21%) and the Americas (34%).
- 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 10 May 2023ICTSI 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.
Sizable post-pandemic capex 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.
ICTSI has sizable exposure to FX depreciation risks, as it derives most of its revenues and cash expenses in EM currencies, while a bulk of its debt is pegged to the $.
Key Metrics
AS OF 10 May 2023| $ mn | FY20 | FY21 | FY22 | 1Q22 | 1Q23 |
|---|---|---|---|---|---|
| Debt to Book Cap | 69.5% | 73.7% | 71.9% | 78.3% | 73.7% |
| Net Debt to Book Cap | 57.5% | 62.2% | 58.2% | 67.5% | 64.5% |
| Debt/Total Equity | 228.2% | 279.7% | 255.3% | 361.1% | 279.8% |
| Debt/Total Assets | 68.6% | 67.5% | 62.5% | 68.0% | 63.4% |
| Gross Leverage | 4.8x | 3.7x | 3.1x | 3.6x | 3.1x |
| Net Leverage | 4.0x | 3.1x | 2.5x | 3.1x | 2.7x |
| Interest Coverage | 3.4x | 3.9x | 4.6x | 4.1x | 4.5x |
| EBITDA Margin | 58.2% | 61.1% | 62.8% | 64.0% | 61.9% |
CreditSights View
AS OF 10 May 2023We have an Outperform recommendation on ICTSI. We think ICTSI’s Jun-2030 bond should trade 40-50 bp tighter than Aboitiz’s Jan-2030 bond (current: 3 bp wider) and ICTSI’s Nov-2031 bond should trade 20-30 bp tighter than Globe Telecom’s Jul-2030 bond (current: 13 bp wider). We believe ICTSI’s credit metrics could stay resilient amid growth slowdowns owing to anticipated yield improvements and disciplined financial management. While ICTSI is exposed to EM-related geopolitical, regulatory and operating risks, we believe these are mitigated by its highly geographically diversified revenues and expectations of a weakening $ that would support EM currencies. We also expect ICTSI’s robust cash-generative business to drive positive free cash flows, even amid higher capex and persistent dividends.
Recommendation Reviewed: May 10, 2023
Recommendation Changed: April 18, 2023
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
