TRIS Rating Co., Ltd. has affirmed the company and issue ratings of Don Muang Tollway PLC (DMT) at “A-” with “stable” outlook. The ratings reflect DMT’s strategic location of the tollway, proven track record of operation, and experienced management team. In addition, the ratings are supported by the long timeframe of DMT’s concession and the simplified procedure used to adjust the toll fees. These strengths are partially offset by the historic volatility of traffic on DMT’s tollway, concentration on the single toll road, competition with free roads, relatively high leverage, plus uncertainties over the government’s policies concerning future transportation. The “stable” outlook reflects the expectation that there are no significant changes in the business environment which will negatively impact DMT’s operating performance. In addition, dividend payments and future investments are expected to be prudentially considered so that these cash outflows will not adversely affect the company’s financial profile.
TRIS Rating reported that DMT was founded in 1988. The company constructed and now operates a 21-kilometer (km.) elevated tollway running from Din Daeng to the National Memorial Monument, under a Build-Transfer-Operate (BTO) concession granted by the Department of Highways (DOH). In 2007, the concession was amended and some key issues were resolved, including the toll rate adjustment procedure. In addition, the concession period was extended from the initial maturity date in 2014 to 2034. DMT's route is a part of the Uttaraphimuk Elevated Tollway (UET) which is the gateway to the northern and northeastern regions. The UET was constructed as a six-lane elevated road situated above the Vibhavadi-Rangsit (V-R) highway. The UET consists of three sections: the original tollway (Din Daeng-Don Muang), the northern extension (Don Muang-National Memorial Monument), and the Rangsit extension (National Memorial Monument-Rangsit). The first two sections are concessioned and operated by DMT, whereas the Rangsit extension is toll-free and operated by the DOH.
TRIS Rating said, elevated tollway is one alternate transportation mode used to support the Bangkok’s transportation network and mitigate the traffic congestion on the free road. Traffic volume on the elevated expressway would generally grow along with the transportation demand of the country, especially where congestion is a problem and where the nearby communities are growing. However, since the tollway charges a toll fee, the traffic volume has shown some sensitivity to price risk and event risk. During the last 10 years, DMT's traffic volume declined from a peak of 140,000 vehicles per day (vpd) on December 2005 to just 60,000 vpd in 2011. The decrease was caused in part by a tripling of the toll rate and the relocation of Bangkok’s international airport from Don Mueang to Suvarnabhumi. In addition, the construction of a competing route also limits the growth prospect of the UET. The expansion of the V-R Highway and the opening of Udonrattaya Expressway (URE) have shifted traffic away from the UET. The V-R Highway is a free local road, running parallel with the UET, while the URE also leads to the north via Bang Pa-in, in Ayudhya province.
In 2010, DMT's total traffic volume tumbled by 29% compared with the previous year. Traffic volume was affected by the latest toll rate increase and a series of political protests. For the first nine months of 2011, traffic volume rebounded by 14% year-on-year (y-o-y) as the Thai economy grew and motorists were more accepting of the new tariff. However, traffic grew by only 3% for the full year, as traffic plunged by 23% y-o-y in the fourth quarter of 2011, which was the time when the city was nearly paralyzed by a crippling flood. During the flood, DMT waived the toll fee for commuters for 25 days. The government agreed to subsidize the expense for eight days. For the first nine months of 2012, the total traffic volume grew by 3% y-o-y. Demand is expected to recover strongly in 2013, because the low cost airlines, i.e., Air Asia, moved to Don Mueang airport from Suvarnabhumi airport.
In 2010, traffic volume fell by a significant amount due to the increase of toll fee. However, DMT reported that revenue rose by 10.5% as the increasing toll rate outpaced the drop in traffic volume. During 2011 and 2012, revenue grew at a pace equal to the increase in traffic volume, because there were no changes in the toll fees. Looking forward, the latest amendment to DMT's concession will mitigate the risk stemming from toll rate adjustment. The rate adjustments have been pre-approved for the remainder of the concession period; the amount and timing of increases are fixed. The increment will be in effect upon a notice to DOH not less than 30 days and prior announcement to the public. However, the price sensitivity of the commuters needs to be monitored.
DMT’s financial profile is considered stable. During the past five years, the operating profit margin has been over 70%. DMT’s leverage is relatively high compared with the amount of cash it generates. The total debt to capitalization ratio was approximately 54% during 2010 through the first half of 2012. The earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio improved from 3.1 times in 2010 to 3.5 times in 2011 and to 3.7 times in the first six months of 2012. The ratio of funds from operations (FFOs) to total debt has slightly improved, rising from 7.5% in 2010 to 9.0% in 2011. This ratio stood at 5.0% (non-annualized) for the first six months of 2012.
In the medium term, TRIS Rating expects that DMT’s operating performance will continue to grow as traffic volume grows. For future growth opportunities, if the company invests in any new infrastructure project which requires a large capital investment, TRIS Rating expects DMT to arrange a financing scheme so as to have an appropriate capital structure, said TRIS Rating. — End
Company Rating: Affirmed at A- Issue Ratings: DMT13DA: Bt1,167 million senior debentures due 2013 Affirmed at A- DMT14DA: Bt1,315 million senior debentures due 2014 Affirmed at A- DMT156A: Bt250 million senior debentures due 2015 Affirmed at A- DMT15DA: Bt1,400 million senior debentures due 2015 Affirmed at A- DMT178A: Bt250 million senior debentures due 2017 Affirmed at A- DMT17DA: Bt1,478 million senior debentures due 2017 Affirmed at A- DMT20DA: Bt1,140 million senior debentures due 2020 Affirmed at A- Rating Outlook: Stable
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