TRIS Rating has affirmed the company rating of Don Muang Tollway PLC (DMT) and the ratings of its existing senior debentures at “A-”. At the same time, TRIS Rating has assigned the rating of “A-” to DMT’s proposed issue of up to Bt400 million in senior debentures. The outlook remains “stable”. The proceeds from the proposed debentures will be used to refinance DMT’s maturing debentures. The ratings reflect the strategic location of DMT’s tollway, low operating risk, the remaining long-life concession, and the future fixed toll rate increases. These strengths are partially offset by the historic volatility of traffic on DMT’s tollway, the fact that it owns a single toll road and competition with free roads, plus uncertainties over the government’s policies of future plans for Thailand’s transportation network. The “stable” outlook reflects the expectation that there will be no significant changes in the business environment which would hurt DMT’s operating performance. TRIS Rating’s assumption does not include any large investment for DMT’s new infrastructure projects.
Founded in 1988, DMT constructed and now operates a 21-kilometer (km.) elevated tollway running from Din Daeng to the National Memorial Monument. The tollway was constructed under a Build-Transfer-Operate (BTO) concession granted by the Department of Highways (DOH). In 2007, the latest amendment was concluded to resolve all pending issues including the toll fee adjustment. For the remaining life of the concession, the toll rates have been pre-approved, and the fixed toll amounts have been planned to increase every five years. 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.
Elevated tollway is one alternate transportation mode used to mitigate the traffic congestion on the free road. Traffic volume on the elevated expressway generally grows as demand for transportation increases, especially when 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.
In 2012, DMT's total traffic volume increased by 16% compared with the previous year. The rise was due to the expanding economy and the post-flood recovery. For the first nine months of 2013, the total traffic volume grew by 19% year-on-year (y-o-y). The growth was driven by the transfer of low cost airlines to Don Mueang airport and more new cars on the road, stemming from the government’s first car rebate policy. As a result, during the same period, DMT’s revenue grew at a pace equal to the increase in traffic volume, because there were no changes in the toll fees.
DMT’s financial profile is considered stable. During the past five years, the operating profit margin has been over 70%. The earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio improved from 3.5 times in 2011, to 4.1 times in 2012, and to 4.8 times in the first six months of 2013. The ratio of funds from operations (FFO) to total debt has improved, rising from 9.0% in 2011, to 11.8% in 2012, and to 13.9% (annualized from the trailing 12 months) at the end of June 2013. DMT’s total debt to capitalization ratio was approximately 54% during the past three years. The leverage is not expected to decline significantly in the medium term as the company plans to maintain high dividend payout ratio.
In the medium term, TRIS Rating expects that DMT’s operating performance will continue to improve as traffic volume grows. However, in the past, the traffic volume was affected by changes in the toll rates. The toll increase will be in late 2014. Hence, the price sensitivity of the commuters needs to be monitored. The company has healthy liquidity as its FFO is growing which is sufficient for working capital and maintenance expenditure. However, for future growth opportunities, if the company invests in any new infrastructure project which requires a large capital investment, DMT would need to arrange a new additional financing scheme.
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