OREANDA-NEWS. Fitch Ratings (Thailand) Limited has assigned a 'BBB+(tha)' National Long-Term Rating and 'F2(tha)' National Short-Term Rating to JWD InfoLogistics Public Company Limited (JWD). The Outlook is Stable.

KEY RATING DRIVERS

Well-Diversified Customer Base: JWD is a full-service in-land logistics provider, supplying warehousing and transportation for general goods, dangerous goods, automotive as well as frozen and refrigerated products. Each category contributed 15%-23% to JWD's total revenue in 2015. The company also provides moving services plus record and information management. Around 20%-25% of JWD's total revenue is supported by three-to-ten year customer contracts.

Sole Concessionaire: JWD holds the sole Port Authority of Thailand concession to provide warehousing and handling of dangerous goods shipped to and from the Laem Chabang Port, located on Thailand's eastern seaboard. All inbound and outbound dangerous goods must be processed through JWD's warehouses and yard, with revenue from dangerous goods contributing about 23% to the company's total revenue in 2015.

High Quality Assets: JWD is among Laem Chabang Port's three largest warehouse and yard operator in terms of area and provides general zone and custom-free zone warehousing. The port is the country's largest deep-sea port, handling more than 80% of inbound and outbound shipments in 2015, and is an ideal location for re-exporting goods and automotives due to minimal transportation costs from and to the port terminal.

Overseas Expansion Plans: The company is expanding its general goods and cold-chain warehouses to Cambodia, Myanmar and Laos through JV structures. The expansion is being funded with debt at the holding company level. Fitch does not consider structural subordination a significant risk for the time being, as the JVs do not generate significant cash flows. However, increasing debt at the holding company level without a corresponding rise in cash flow could present issues.

Moderate Competition: The company's logistic services are predominantly in industries with a few dominant players, excluding dangerous goods, which are under concession. Each player has some differentiation in terms of catchment area, specialisation, expertise and value-added services. Barriers-to-entry are moderate and include intensive capital requirements, expertise and previous experience for some products, especially automotives.

Moderate Financial Leverage: Fitch expects JWD to maintain FFO-net-adjusted-leverage at 2.0x-3.0x over the medium-term (2015: 2.7x). The company's strong cash flow generation should support its planned capex and overseas investments of THB2.2bn over the next three years. However, larger-than-expected investment with aggressive debt-funding could increase financial leverage beyond a level consistent with JWD's current rating.

Small Operating Scale: JWD provides third-party logistics services to large corporates, which outsource some logistics functions from their in-house units, and small-to-medium manufacturers. This business is likely to have small operating scale, constrained by the size of Laem Chabang Port, and therefore be more vulnerable to economic cycles. JWD's main business of imports and exports also exposes it to asset-concentration risk in the port area. Nonetheless, Fitch believes the company's overseas expansion will support business growth and increase diversification in the long term.

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuer include:

- 7%-8% revenue growth per year in 2016-2017

- a slight decline in EBITDAR margin in 2016 due to weak activities, including warehouse renovations in 1H16, but improving in 2017 once completed

- total capex and investment of THB2.2bn over 2016-2018.

RATING SENSITIVITIES

Fitch does not expect positive rating action over the next year or two, as JWD is in an expansion phase.

Future developments that may, individually or collectively, lead to negative rating action include:

- a significant increase in debt at the JWD level without corresponding cash flow generation at its own level, leading to structural subordination at the parent level

- aggressive debt-funding investment

- an increase in FFO - net-adjusted-leverage to above 3.0x on a sustained basis.