TRIS Rating affirms the company rating on WHA Corporation PLC (WHA) and the ratings on WHA’s existing senior unsecured debentures at “A-”. At the same time, TRIS Rating assigns the rating on WHA’s proposed issue of up to Bt3,500 million in senior unsecured debentures. The proceeds from the new debentures will be used to refinance the company’s debt, as well as for planned capital expenditures and working capital.
The ratings reflect WHA’s strong competitive position in the built-to-suit warehouse and the industrial estate industry in Thailand. The ratings are enhanced by a sizable base of recurring income from properties for rent, sale of utility services, and dividends from investments in power projects. The ratings also incorporate the financial flexibility from selling its assets to real estate investment trusts (REITs). However, WHA’s business profile is weighed down by the volatile nature of the industrial property market.
KEY RATING CONSIDERATIONS
Leading in built-to-suit warehouses and industrial estates
WHA’s strong business profile is underpinned by its leadership in two segments: built-to-suit warehouses for rent and industrial estates.
WHA is a top-tier provider of built-to-suit warehouses for rent in Thailand with extensive track record for a decade. The company’s competitive edge stems from its record of providing high quality warehouses to well-known multinational companies and large local enterprises.
WHA strengthened its market position by acquiring WHA Industrial Development PLC (WHA ID), formerly named Hemaraj Land and Development PLC (HEMRAJ), in 2015. This acquisition made WHA the largest industrial estate developer in Thailand. Its market share has averaged 38% over the past 10 years, well ahead of Amata Corporation PLC (AMATA; 26% share) and Rojana Industrial Park PLC (ROJNA; 20% share).
After acquiring WHA ID, WHA’s portfolio of properties for rent has enlarged. At the end of June 2018, total leasable area including preleased area was 2,150,930 sq.m. In terms of leased area, WHA’s leased area under management was 1,573,017 sq.m. at the end of June 2018, comprising 1,211,456 sq.m. owned by property funds and REITs, plus 276,691 sq.m. owned by WHA and its joint ventures, and 84,870 sq.m. owned by WHA ID.
Volatile nature of industrial estate business
The industrial property market tends to move in tandem with the state of economy and investor confidence. WHA’s land sales in recent years reflected the slowdown in the industry. After peaking above 2,000 rai in 2013, sales dropped to 800-1,000 rai in 2015-2017. WHA sold merely 173 rai in the first half of 2018.
Nevertheless, we expect WHA will be the beneficiary of the recent approval of Thailand’s new Eastern Economic Corridor (EEC) bill. WHA has about 10,000 rai of land (including land owned by new joint venture with IRPC PLC). About 85% of which is located in Rayong and Chonburi, the two Eastern seaboard provinces.
Weak demand in rental segment
WHA’s rental and service revenue tumbled to Bt1.1 billion in 2017 and Bt0.5 billion in the first half of 2018 from Bt1.7 billion in 2016. The revenue decline was attributed to the sizable asset sale to REITs and a drop in demand for rental property due to the sluggish economy. However, demand is rising in the e-commerce sector and we expect the EEC bill will boost sentiment and attract more foreign direct investment.
Recurring income from utility services
WHA receives a reliable stream of income from utility services. Revenue from utility services grew from Bt2.0 billion in 2016 to Bt2.1 billion in 2017 and to Bt1.0 billion in the first half of 2018, or 22% of WHA’s revenue in 2017 through the first half of 2018.
Income from utility services has grown steadily, supported by continued growth in the number of customers and rising water demand from new power plants in WHA’s industrial estates, as well as price adjustment of service charges and better product mix. The volume of utility services rose to 100 million cubic meters (cbm) per year in 2017 and 53 million cbm per year in the first half of 2018 from 85 million cbm per year in 2012, a compound annual growth rate (CAGR) of 3.3% per year. The average selling price rose at a CAGR of 2.7% per annum during the same period.
TRIS Rating expects the prospects for this segment would remain strong. Demand for utility services will rise as buyers of industrial land gradually start operations.
Robust dividends from power segment
Through its subsidiaries, WHA owns equity stakes in several power projects. At present, based on its ownership stakes, WHA ID has the equivalent of 510.5 megawatts (MW) of power generating capacity. Capacity will rise to 544.8 MW in 2019. In our view, the investments in the power segment will provide dividends of Bt1.0-Bt1.3 billion per year during the next three years, equivalent to 20%-30% of EBITDA for WHA in a given year.
Leverage and cash flow protection likely to weaken
TRIS Rating forecasts WHA’s leverage will rise but the company has shown it has enough financial flexibility to manage its leverage overtime. Leverage peaked in 2015 after WHA acquired WHA ID. During 2015-2017, WHA took several steps to improve its capital structure and delever the balance sheet. As a result, the total debt to capitalization ratio improved to 53.1% in 2017 and 54.2% as of June 2018 from 67.1% in 2015.
TRIS Rating forecasts WHA’s capital expenditures of about Bt25 billion during the next three years, which are mainly for land acquisition and the development of industrial estates and warehouses for rent. Some of the planned capital expenditures are earmarked for the utility services segment and investments in power plants.
In our base case projection, WHA’s EBITDA is projected to be Bt4.5-Bt5.5 billion per year during 2018-2021. Funds from operations (FFO) will hover around Bt3 billion during the same period. Given the expected levels of cash flow, debt repayment, and the aforementioned capital expenditures, the FFO to total debt ratio is estimated to be 7%-9% during the next three years. The EBITDA interest coverage ratio should stay at about three times during the same period.
We expect WHA’s liquidity and refinancing risk would be manageable. Repayments of long-term debts and debentures will vary in the range of Bt4-Bt9 billion per year during the next three years. WHA and its subsidiaries have the ability to access the capital market, and it can sell rental properties to REITs. These options give WHA a significant amount of financial flexibility.
RATING OUTLOOK
The “stable” outlook reflects the expectation that WHA can maintain its leading position in the warehouse segment and the industrial property industry. Leverage will be kept under control even as the company continues to pursue its growth strategy. WHA earns significant amount of recurring income from the sale of utilities, dividends from power projects, and rental fees. These cash streams, plus the sale of assets to REITs, will help protect the company from the volatility inherent in the sale of industrial land.
RATING SENSITIVITIES
The ratings of WHA could be under downward pressure if the private investment stays persistently low nationwide, pushing revenues and cash flow from operations to fall significantly below expectations. Any sizeable, debt-funded investments, which deteriorate the balance sheet and stress debt serviceability, would also be a negative factor for the ratings.
The ratings could be revised upward should the company make significant, sustainable increases in cash flow while improving the balance sheet.
COMPANY OVERVIEW
WHA is the leading provider of built-to-suit warehouses in Thailand. The company was incorporated in 2007 by the Dr.Somyos Anantaprayoon and Ms.Jareeporn Jarukornsakul. WHA was listed on the Stock Exchange of Thailand (SET) in November 2012. Presently, Ms. Jareeporn Jarukornsakul is one of co-founders and is also the current chairman and group CEO.
Apart from providing warehouses for rent, the company expanded its business scope to offices for rent, and solar rooftop projects in 2013-2014. WHA Infonite Holding Co., Ltd. was set up in 2015 to provide customers with information technology (IT) solutions, such as data centers and fiber optic services.
WHA escalated its opportunities by acquiring WHA ID (formerly named HEMRAJ), a leading industrial estate developer in Thailand. In late 2014 through 2015, WHA acquired nearly all (98.5%) of the equity of WHA ID at a cost of Bt43.3 billion.
WHA also earns a substantial base of recurring income from the sale of utility services and receives dividends from the power projects WHA ID made earlier. Recurring income from rental properties and utility services accounted for 21%-34% of total revenues during 2015-2017, compared with about 10% of total revenues in the pre-acquisition period.
WHA recently expanded into Vietnam. Its first overseas project is located in Nghe An province. WHA has been granted an Investment Registration Certificate on 498 hectares (or 3,100 rai) of land. The initial development will cover approximately 1,000 rai. Land transfers will start in 2019.
WHA Corporation PLC (WHA)
Company Rating: A-
WHA194A: Bt1,000 million senior unsecured debentures due 2019 A- WHA195A: Bt1,110 million senior unsecured debentures due 2019 A- WHA195B: Bt150 million senior unsecured debentures due 2019 A- WHA196A: Bt230 million senior unsecured debentures due 2019 A- WHA196B: Bt100 million senior unsecured debentures due 2019 A- WHA197A: Bt385 million senior unsecured debentures due 2019 A- WHA197B: Bt280 million senior unsecured debentures due 2019 A- WHA197C: Bt300 million senior unsecured debentures due 2019 A- WHA204A: Bt1,500 million senior unsecured debentures due 2020 A- WHA204B: Bt1,000 million senior unsecured debentures due 2020 A- WHA204C: Bt2,600 million senior unsecured debentures due 2020 A- WHA208A: Bt100 million senior unsecured debentures due 2020 A- WHA214A: Bt1,900 million senior unsecured debentures due 2021 A- WHA217A: Bt600 million senior unsecured debentures due 2021 A- WHA219A: Bt1,500 million senior unsecured debentures due 2021 A- WHA234A: Bt1,100 million senior unsecured debentures due 2023 A- WHA247A: Bt280 million senior unsecured debentures due 2024 A- Up to Bt3,500 million senior unsecured debentures due within 7 years A- Rating Outlook: Stable
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