ICTSI: Logistics

THE COMPANY: International Container Terminal Services Inc (ICTSI) was created in 1987 with the privatisation of the Manila International Container Terminal (MICT). ICTSI’s strategy is to continue developing its existing portfolio of terminals while proactively seeking opportunities for acquisition. ICTSI has 23 terminal concessions and port development projects in 17 countries worldwide. It also has six operating terminals in the Philippines and one each in Indonesia, Brunei, Japan, China, the US, Ecuador, Brazil, Poland, Georgia, Syria, Madagascar and Croatia. ICTSI also has three greenfield projects in Mexico, Colombia, and Argentina.

BUSINESS PERFORMANCE: In the first nine months of 2011, net income grew 39% year-on-year (y-o-y) to $101.4m from $73m. Previously, the country’s leading port operator reported net income of $31.52m in the second quarter of 2011, up 61% y-o-y. This brings first-half earnings to $60m, up from the $41.58m recorded in the first half of 2010. The results were mostly in line with market consensus forecasts, but the earnings before interest taxes depreciation and amortisation (EBITDA) margin surprised on the downside, due to start-up costs in Portland and Croatia. Between 2007 and the third quarter of 2011, consolidated revenues grew 195.6%, while net income rose 39.28%.

For the first nine months of 2011, ICTSI posted revenue from port operations of $490.9m, 29% higher than the $380.6m reported in 2010. Revenue from port operations in the third quarter of 2011 was 29% higher, at $171.8m. Total revenue growth was fuelled by port operations in the Americas, which saw the number of twenty-foot equivalent units (TEUs) handled rise by 59.4% in the second quarter of 2011. The opening of ICTSI’s operations in Portland underpinned its Americas segment growth. The Americas comprised 30% of consolidated volume in the first half of 2011. Volumes from Europe, the Middle East and Africa (EMEA) were also strong, increasing by 49.7% y-o-y in the second quarter of 2011. Croatia alone contributed 19.4% to EMEA’s segment volume for the period. Meanwhile, ICTSI’s core Asian market was the underperformer, with volumes up by just 10% in the first half of the year. Nevertheless, consolidated TEU volume in the second quarter grew 25.3% y-o-y and 11.9% quarter-on-quarter.

As well, ICTSI recently sold its 16.8% stake in Singapore-based Portek International to Mitsui for $35.6m, gaining around $10m from the sale. ICTSI had to withdraw from its voluntary cash offer and conceded to the higher counter-bid of the Japan-based company to control 64% of the port operator. However, the missed revenues from Portek may be offset by earnings from further port privatisations. Reports have come out that ICTSI will participate in privatisation efforts in Africa.

Capital expenditures in the first half of 2011 comprised less than 20% of its full-year budget of $365m. The company is currently waiting for certain approvals from offshore regulators to go ahead with expansion plans in both existing terminals and green-field projects in Mexico, Colombia and Argentina.

Excellent periods of growth are expected for ICTSI in 2012 and 2013, given the contributions of Portland and Croatia. It is estimated that in the next three to five years, ICTSI’s earnings will continue to improve annually as its greenfield projects materialise.

OUTLOOK: The majority of ICTSI’s operations are currently located in high-growth emerging market economies in Asia, Latin America and Eastern Europe. As a result, investors who hold stock in the logistics company will be allowed to ride the emerging market play.

Geographically, the Americas segment posted the strongest growth in terms of volume handled in second-quarter 2011. This segment, which comprised almost a third of consolidated volume for the period, will be the firm’s catalyst for growth over the next few years, particularly when the aforementioned greenfield projects and potential brownfield projects become visible. Given the firm’s long-term growth story, its ability to interact in emerging markets, as well as its higher revenue per TEU and relatively attractive valuations against regional peers, ICTSI looks set for the long haul.