Fitch has upgraded
Fitch has also removed the Rating Watch Positive (RWP) from all ratings of SCGJWD. The Outlook on the Long-Term rating is Stable.
The upgrade follows the completion of the merger of the company, formerly known as
The rating upgrade reflects SCGJWD's improved credit profile following the merger, with enhanced service offerings and larger scale, as well as a stronger financial profile.
The rating also incorporates a one-notch uplift from its Standalone Credit Profile (SCP) of 'bbb(tha)' to reflect the likelihood of support from its stronger 42.9%-shareholder SCC. Although SCC does not have majority control over SCGJWD, SCC has operational incentive and a track record of providing support, including access to group funding arrangements.
Key Rating Drivers
Linkage with Key Shareholder: We assess that SCC has 'Medium' operational support incentive to support SCGJWD. SCGJWD is SCC's flagship for its logistics business, providing logistics and supply-chain services to the group and third parties. SCC has provided financial support to SCGJWD via intercompany loans and sharing the working capital facilities that banks provide to the group. Fitch believes that SCC is likely to continue to provide support, if needed.
Our 'Medium' assessment for operational support also reflects the common branding and SCC's influence as the largest shareholder with one of SCGJWD's co-CEOs seconded from SCC. However, the strategic incentive to support is viewed as 'Weak' due to SCGJWD's small size compared with SCC's key subsidiaries, leading to non-material earnings contribution and growth potential from SCJGWD in the medium term. The legal incentive is also 'Weak' given the absence of debt guarantees or cross-default clauses in the two entities' debt.
Stronger Business Profile: After the merger, SCGJWD will become the largest integrated logistics service provider in
SCGL has expertise in transportation and distribution for the industrial segment with a large network, customer base and cargo. JWD specialises in warehouse management of dangerous goods and automotive goods as well as the cold chain business. Therefore, the two companies' businesses do not have significant overlap and are complementary. SCGJWD will have a wider geographical footprint following the merger, including in
Moderate Revenue Visibility: Around 40% of SCGJWD's revenue will be from logistics and supply-chain services to SCC, supporting stable demand as SCC group is a dominant player in various industries including cement, building materials, chemical and packaging. SCGJWD also benefits from moderate entry barriers in other logistics sub-segments, in light of the capital intensity and expertise required. SCGJWD is the sole concessionaire for warehousing and handling of dangerous goods at Laem Chabang Port,
Improving Financial Profile: Fitch forecasts financial leverage of the merged entity to decrease significantly to around 4.5x, compared to JWD's pre-merger leverage of 6.0x. This is because SCGL had low leverage before the merger on account of its asset-light business model. However, we do not expect further deleveraging over the next two years as the company plans to step up capex for expansion and investments.
High Capex: The company will pursue a growth strategy over the next two to three years. The key strategic focus is to expand its cold storage capacity, add dry warehouses to meet rising demand, as well as M&A opportunities. However, increasing earnings should support the higher capex, which will allow for a stable leverage profile. We estimate SCGJWD's EBITDAR net leverage to remain at about 4x-4.5x in the next three years, while capex and investment for 2023 could increase to around
Stronger Organic Growth: We believe there is improved visibility for organic growth following the merger. We expect SCGJWD's wider platform of complementary services and larger customer base to create cross-selling opportunities. Although the current economic environment is challenging, we expect the company to generate at least modest growth with its diversified service offerings and strong customer relationships.
Derivation Summary
SCGJWD is one of
SCGJWD's 'bbb' SCP is weaker than the ratings of companies in the polymer and plastic-product business, including
SCGJWD has a smaller operating scale and lower geographical diversification than PTL, which has operations across three key regions, including
SCGJWD's business profile is stronger than that of
SCGJWD has a significantly smaller operating scale than
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer
Revenue of the combined entity of
EBITDAR margin at around 10% in 2023-2024
Capex of
Dividend payout ratio of 45%
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
EBITDAR net leverage decreases to below 4.0x for a sustained period.
Evidence of stronger ties with SCC
Factors that could, individually or collectively, lead to negative rating action/downgrade:
EBITDAR net leverage is above 5.0x for a sustained period.
Weakening ties with SCC
Guaranteed Bonds by CGIF
Factors that could, individually or collectively, lead to positive rating action/upgrade:
No positive action is expected as the '
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Deterioration in CGIF's credit profile relative to
Liquidity and Debt Structure
Manageable Liquidity: SCGJWD's debt was
After the merger, SCGJWD, as a flagship company of SCC, should have stronger ability to access domestic bank and capital markets, given the group's strong relationships locally.
Issuer Profile
SCGJWD is the largest integrated logistics service provider in
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
SCGJWD's ratings incorporate a one-notch uplift from its SCP, reflecting our view that its main shareholder SCC, has 'Medium' operational incentives to support it.
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