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StanChart Expects DP World to Remain Profitable

The bank initiated its credit research coverage on DP world’s bonds by issuing a stable outlook on the port operator’s credit. “We like DP World on account of its well-diversified revenue base, strong cash flow and importance as a key asset in Dubai’s strategy of promoting economic development and diversifying the economy away from oil,” Simrin Sandhu, Credit Analyst for the bank said in a research report received by Khaleej Times on Friday. The NASDAQ Dubai listed company has two outstanding bonds worth $1.5 billion and $1.75 billion maturing in 2017 and 2037 respectively.

DP World which operates 46 marine terminals in 31 countries globally is one of the world’s most geographically diversified port operators in the World. While the report noted that the company remains vulnerable to global economic downturn, it expects the revenue from Middle East and Asian ports to cushion the impact.

“DP World has limited exposure to the West with over 65 per cent of its revenues coming from markets in the Middle East and Asia.

“This portfolio composition should help insulate the company to some extent from declining revenues as its core markets are expected to continue to post positive, albeit slowing, growth,” Simrin said.

Last month, the company said that it is reviewing its expansion projects, trimming costs and will freeze hiring this year amid the global economic recession. It also added that the grim economic picture to affect the volume growth this year. In 2008, the company handled 46.8 million twenty-foot equivalent container units (TEU), an increase of 8 per cent from 2007, against total capacity of 54 million TEU.

Despite the expected slowdown in volume growth, the bank expects the company’s to remain profitable. “Its break-even capacity utilisation levels are low at approximately 40 per cent, while the company has been operating at utilisation levels in excess of 80 per cent. Thus, there is significant headroom for volume contraction and unless throughput falls drastically, we do not expect DP World to post operating losses,” Simrin said.

· aruna@khaleejtimes.com