Fitch Affirms Bangkok Aviation Fuel Services at 'A+(tha)'
KEY RATING DRIVERS
Financial Leverage to Increase: Fitch Ratings expects BAFS's financial leverage to rise over the next three years due to an investment of around THB7.5bn in a multi-product pipeline, which will be largely debt funded. Fitch now expects FFO-adjusted net leverage to be around 2.5x-3.0x during the investment period in 2017-2018 (FY14:1.0x). We expect the company to generate strong operating cash flows from its existing operations, which will help improve its financial profile to a level commensurate with its current ratings from 2019.
Dominant Market Position: The ratings of BAFS reflect its dominant position in Thailand's aviation fuel service market. BAFS is the sole operator of the fuel depot and hydrant network at Suvarnabhumi Airport, the country's largest international airport. It is also the major into-plane fuelling service provider at the airport, with 86%-87% market share. The company faces limited competition, and benefits from high barriers to entry due to the required operating concessions. Fitch expects BAFS's uplift volume (the amount of fuel supplied to aircraft) to increase by 9%-10% in 2015 and 4%-5% a year over the medium term.
Limited Exposure to Oil Prices: BAFS is insulated from the volatility of fuel prices as its revenues are derived solely from fuelling service fees, while fuel is sold by oil companies to airlines. BAFS's major cost is its pre-agreed concession fee, which means that profitability is stable.
Fitch's key assumptions within our rating case for the issuer include:
- Uplift volume growth of 9%-10% in 2015 and 4%-5% a year in 2016-2017;
- An increase in EBITDAR margin to 58%-59% in 2015-2017;
- Capex of THB3bn-THB4bn a year in 2016-2017, including investment in the new pipeline project.
Positive rating action is unlikely in the next 12-18 months due to a likely increase in its financial leverage.
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- A delay in operation start-up of its new pipeline project, project cost overrun or high dividend payouts, leading to an FFO-adjusted net leverage sustained above 2.0x after 2018.