Hong Kong, June 11, 2018 -- Moody's Investors Service has changed the outlook on Wan Hai Lines Ltd.'s
rating to positive from stable.
At the same time, Moody's has affirmed the company's Ba2 corporate
family rating.
RATINGS RATIONALE
"The change in rating outlook to positive reflects our expectation that
the company's credit profile will continue to improve over the next
two years, supported by its improving operating performance and
prudent financial management," says Chenyi Lu, a Moody's Vice
President and Senior Credit Officer.
Moody's expects Wan Hai's financial leverage -- as measured
by adjusted net debt/EBITDA -- to improve to around 1.5x
over the next two years, driven by higher earnings from growing
sales volumes and a relatively stable adjusted net debt level.
The level of leverage is strong for a Ba2 rating.
Wan Hai's financial leverage improved to 1.7x in 2017,
from 2.2x in 2016, driven by higher earnings and lower net
debt stemming from improved operating cash flows.
Moody's projects Wan Hai's net debt levels to be relatively
stable over the next two years, because (1) the company's
operating cash flows will continue to improve on higher earnings and sufficiently
fund its moderate capital spending; (2) the company will be prudent
in its investments, remain cautious in vessel acquisitions,
maintain a short-term charter strategy, and purchase slot
capacity from partners to support its operations.
"The positive outlook also reflects the company's operating strengths
which will continue to drive volume growth and lower the risk of EBITDA
volatility against a backdrop of challenging market conditions in the
liner market," adds Lu, who is also Moody's Lead Analyst for
Wan Hai.
Wan Hai's operating strengths, including (1) competitive advantages
as the leading liner in the intra-Asia market with a well-established
presence and reputation, solid operating history of more than 40
years, and comprehensive service offerings, (2) prudent business
strategy to manage its operating capacity, and (3) a wide customer
base, will address growing demand for its services and lower its
EBITDA volatility through industry cycles.
Moody's expects Wan Hai's revenue to grow by 5.5%
in 2018 and 5.1% in 2019, driven by a modest increase
in sales volumes and relatively stable freight rates amid continued industry
overcapacity. Wan Hai reported revenue growth of 6.0%
year-on-year to NTD60.8 billion in 2017, mainly
owing to sales volume growth.
Moody's expects Wan Hai's adjusted EBITDA margin will remain around
16.5% over the next two years, because rising bunker
costs will be offset by its continued implementation of expense controls
and cost improvements.
Its adjusted EBITDA margin improved to 16.7% in 2017 from
15.4% in 2016, supported by expense controls and cost
improvements.
Wan Hai's liquidity profile is strong. At the end of March 2018,
the company had cash and cash equivalents of NTD14.8 billion and
short-term marketable investments of NTD2.2 billion,
which together provide a strong liquidity reserve for its short-term
debt of NTD8.9 billion maturing over the next 12 months and projected
capital spending of NTD4.8 billion over the same period.
Wan Hai's Ba2 rating reflects the company's (1) leading position
in the intra-Asia liner market, (2) track record of operating
through the various shipping industry cycles, (3) good access to
the domestic capital and banking markets, (4) proactive operational
and financial management, and (5) sound liquidity position through
shipping industry cycles.
At the same time, the rating is constrained by the absence of business
diversity, partly mitigated by the company's established and wide
customer base. Wan Hai's single-segment liner operations
expose it to cyclical performances.
The positive rating outlook reflects Moody's expectations that over the
next two years Wan Hai's credit profile will continue to improve
on the back of revenue growth and improving earnings and prudential financial
management.
The rating could be upgraded if Wan Hai maintains a prudent investment
and operating strategy and improves its credit metrics, such that
its adjusted net debt/EBITDA falls below 1.5x-2.0x
on a sustained basis.
The rating outlook could return to stable if the company's: (1)
liquidity reserve depletes materially; or (2) debt leverage rises,
such that its adjusted net debt/EBITDA exceeds 2.5x-3.0x
on a sustained basis, either due to declining revenue, deteriorating
profitability or debt-funded acquisitions.
The principal methodology used in this rating was Shipping Industry published
in December 2017. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Wan Hai Lines Ltd., listed on the Taiwan Stock Exchange since
May 1996, operated a fleet of 92 container vessels (72 wholly owned
and 20 chartered) at the end of March 2018, offering intra-Asia,
Asia-Middle East and trans-Pacific liner services.
With 31 dedicated service routes at the end of March 2018, Wan Hai
is the leading provider of intra-Asia container shipping services,
with an estimated 15% market share.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Chenyi Lu
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
