Fitch Affirms Bangkok Aviation Fuel Services' Ratings; Revises Outlook to Positive
Fitch Ratings-Bangkok/Singapore-19 January 2010: Fitch Ratings (Thailand) Limited has today affirmed Bangkok Aviation Fuel Services Public Company Limited's (BAFS) National Long-term rating at ‘A-(tha)' and National Short-term rating at ‘F2(tha)'. The Outlook on the Long-term rating has been revised to Positive from Stable.
The Positive Outlook is based on the agency's expectations that BAFS' strong earnings and cash flow, and moderate capex plan will result in continued improvement in financial leverage (measured against cash flow) to below 2.0x within the next 12 months; this is amidst signs of demand recovery though still weak operating environment.
The National Long-term rating of BAFS could be upgraded if the company's financial leverage improves to below 2.0x on a sustained basis. Conversely, the Outlook could be revised back to Stable if a prolonged economic and industry downturn affects BAFS' cash flow generation, or if there are any new and substantial debt-funded investments or high dividend payouts that delay its de-leveraging process.
BAFS' EBITDAR margin was stable at 63.8% in 9M09 (9M08: 63.4%) given successful cost control measures, and despite a continued decline in revenues and EBITDAR by 8.6% and 7.9% yoy, respectively (in line with a yoy decline in uplift volume of 10.4%). On a quarterly basis revenue grew 3.3% qoq, while EBITDAR grew 6.2% qoq in Q309 (in line with the 3.7% growth in uplift volume qoq).
Given minimal capex in 9M09, BAFS' free cash flow (FCF) increased 90% yoy. Its net debt fell to THB2.6bn at end-9M09 (end-2008: THB3.2bn). Net adjusted debt to last 12 months (LTM) EBITDAR improved to 2.4x at end-9M09 (end-2008: from 2.8x).
The ratings reflect BAFS's dominant position in the domestic aviation fuel services market. It is the sole operator of the fuel depot and hydrant network at Suvarnabhumi Airport, and is the major into-plane fuelling service provider at the airport with an almost 90% share. Furthermore, the entry barrier of the industry is high given the required concessions from the airport operator.
The ratings are also supported by BAFS' major shareholders, Thai Airways, PTT, and the subsidiaries of several foreign oil companies such as Shell, Exxon Mobil, and Chevron. Additionally, BAFS benefits from a fee structure which limits exposure to volatile oil prices, and management's strong track record. The ratings also reflect BAFS' continued strong cash flow, despite a weakening operating environment, especially during the past 12-18 months.
The ratings take into account the continued weak operating environment in the air travel industry over the next six to twelve months, although Fitch notes there have been signs of recovery since Q409. Local political unrest and the re-emergence of the H1N1 influenza epidemic remain concerns, although some preventative measures and contingency plans are in place.
Applicable Criteria is available on Fitch's website at www.fitchratings.com. In rating this issuer, Fitch has also used the master criteria ‘Corporate Rating Methodology' dated November 24, 2009.
Contacts: Somruedee Chaiworarat, Obboon Thirachit, Vincent Milton, Bangkok, +662 655 4755.
Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated ‘AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(tha)' for National ratings in Thailand. Specific letter grades are not therefore internationally comparable.
Additional information is available at www.fitchratings.com.