Fitch affirms WHAUP score, predicts solid revenue gains

Fitch Ratings Thailand has affirmed its national long-term rating of BBB+(tha) for the outstanding senior unsecured debentures of WHA Utilities and Power Plc (WHAUP).

At the same time, Fitch has chosen to withdraw all of WHAUP’s ratings for commercial reasons.

WHAUP benefits from low business risk stemming from limited competition in its market and recurring income from longterm contracts. Stable demand from customers underpins predictable and recurring revenue, and operating margin should remain steady because of cost-plus tariff pricing, which lets the company pass on cost increases to customers.

WHAUP is the sole provider of essential water services to industrial users in industrial estates and land operated by its major shareholder, WHA Industrial Development Plc (WHA ID).

Fitch expects WHAUP’s revenue to rise strongly in 2018 and 2019, due to stronger demand for water from the commissioning of new small power producers in its service area and a tariff hike during the period.

Higher demand is also likely to come from strong industrial land sales in WHA ID’s estates during 2018. The new tenants will become WHAUP water service customers.

Fitch expects WHAUP to receive higher dividends from its partly owned power firms to the tune of 1.2 billion-1.3 billion baht in 2018 (after 687 million baht in 2017), with the commissioning of new power projects in which WHAUP has minority stakes.

Fitch says dividends from these investments are predictable because most of the revenue is secured by long-term power purchase deals with a state utility, the Electricity Generating Authority of Thailand.

WHAUP’s business profile is strong relative to two Thai peers. These companies have highly predictable and stable earnings because of low competition, stable demand and recurring income from longterm contracts. WHAUP’s A-(tha) standalone rating, however, is lower than that of the two peers because of WHAUP’s weaker financial leverage.

The company had total debt of 7.9 billion baht at the end of 2017, with 4 billion baht in debentures due in 2020. The company also plans to issue new debentures in 2018 to refinance its remaining 3.9-billion-baht bank loan.

This profile warrants a higher standalone rating of A-(tha). But WHAUP’s national long-term rating reflects strong linkages with its ultimate parent, WHA Corporation Plc, which has a weaker credit profile.