TRIS Rating affirms the company rating of WHA Corporation PLC (WHA) at “A-”. At the same time, TRIS Rating assigns the rating of “A-” to WHA’s existing senior unsecured debentures totaling Bt14,195 million.
The ratings reflect WHA’s strong competitive position in warehouse business and its role as one of the leading industrial estate developers in Thailand. The ratings are also supported by the sizable base of recurring income the company earns from its properties for rent, the sale of utility services, and investments in power projects. The strengths are, however, partially constrained by the volatile nature of the industrial property market. The ratings also incorporate the financial flexibility WHA has via selling assets to real estate investment trusts (REITs).
WHA’s financial performance improved during the first nine months of 2017, underpinned by strong growth in revenues from land sales and a continued rise in recurring utility income. Revenue soared by 23.8% year-on-year (y-o-y) to Bt4,784 million in the first nine months of 2017. Revenue from land transfers was Bt2,215 million in the first nine months of 2017, rising from Bt785 million during the same period of a year earlier. Utility services and rental income rose by 8.9% y-o-y to Bt1,441 million in the first nine months of 2017. WHA’s profitability was satisfactory. The operating margin (operating income before depreciation and amortization as a percentage of revenue) in the first nine months of 2017 was 33.7%, increasing from 31%-32% in 2015-2016. As a result, earnings before interest, taxes, depreciation, and amortization (EBITDA) rose by 30% y-o-y to Bt3,751 million during the first nine months of 2017. The successful implementation of a deleveraging plan pushed leverage down. Total debt to capitalization ratio improved to 56.9% as of September 2017, from 70.1% at the end of 2014. A rise in funds from operations (FFO) and a drop in total debt pushed the FFO to total debt ratio to 9.3% (annualized, from the trailing 12 months) in the first nine months of 2017, up from about 6% in 2015 and 8% in 2016.
Looking forward, the long-term prospects for investment in Thailand are expected to remain intact as a result of the nation’s strategic location and good infrastructure. The prospects are also supported by the development of the Eastern Economic Corridor (EEC), reinforced by greater government’s spending for infrastructure, and the more attractive benefits the investors will be rewarded from the new policy of Thailand Board of Investment (BOI).
RATING OUTLOOK
The “stable” outlook reflects the expectation that WHA can maintain its leading position in the warehouse and industrial property industries. The recurring income WHA earns from the sale of utilities, power projects, and rental properties, together with the sale of assets to REITs will provide a cushion for the company to protect it from the volatility inherent in the sale of industrial land.
Under TRIS Rating’s base-case scenario, WHA’s FFO is projected to hover around Bt3,500-Bt4,200 million per year in 2017-2019. The debt to capitalization ratio of WHA is forecast to hold at moderate level, and the FFO to total debt ratio is projected to stay around 10% during the next three years, partially supported by financial flexibility it has via selling assets to REITs.
RATING SENSITIVITIES
The ratings of WHA could be under downward pressure if the nation’s investment spending stays low, pushing the company’s revenues and cash flow from operations down below expectations. Any sizeable, debt-funded investments, which deteriorate balance sheet and limit debt serviceability, would also be a negative factor for the ratings. On the contrary, the ratings could be revised upward should the company make significant, sustainable increases in cash flow while improving the balance sheet.
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