Moody’s: Wan Hai’s softer 2018 results have no impact on its rating or outlook

Moody’s Investors Service says that Wan Hai Lines Ltd.’s softer 2018 financial results are in line with Moody’s expectations and have no impact on its Ba2 corporate family rating or positive rating outlook.

“Wan Hai’s debt leverage — as measured by adjusted net debt/EBITDA — increased to 2.7x in 2018 from 1.7x in 2017 because of lower earnings and higher net debt amid higher capital spending,” says Chenyi Lu, a Moody’s Vice President and Senior Credit Officer.

“However, we expect its debt leverage will improve to around 1.5x-2.0x over the next two years, driven by higher earnings and relatively stable adjusted net debt. This level of leverage remains strong for a Ba2 rating,” adds Lu.

Wan Hai’s revenue grew 9.9% to NTD66.8 billion in 2018 from a year earlier, underpinned by growing sales volumes.

Moody’s expects Wan Hai’s revenue to grow 7.7% in 2019 and 6.7% in 2020, driven mainly by a continued modest increase in sales volumes and higher freight rates despite continued industry overcapacity.

Wan Hai’s adjusted EBITDA margin declined to 14.5% in 2018 from 16.7% in 2017 because higher bunker costs were only partially offset by Wan Hai’s expense control and cost improvement measures.

However, its adjusted EBITDA margin should improve to 16.0%-16.5% over the next two years, driven by higher freight rates, relatively stable bunker costs, and the company’s continued implementation of expense control and cost improvement measures.

Moody’s also expects Wan Hai’s net debt to remain relatively stable over the next two years because (1) the company’s operating cash flow will continue to improve because of higher earnings that can sufficiently fund its capital spending; and (2) the company will be prudent in its investments, remain cautious in its vessel acquisitions, maintain a short-term charter strategy and purchase slot capacity from partners to support its operations.

Wan Hai’s liquidity remains strong. At the end of 2018, the company had cash and cash equivalents of NTD13.4 billion and short-term marketable investments of NTD2.3 billion, which together provide a strong liquidity reserve for its short-term debt of NTD8.3 billion maturing over the next 12 months and projected capital spending of about NTD3 billion over the same period.

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 95 container vessels (72 wholly owned and 23 chartered) at the end of 2018, offering intra-Asia, Asia-Middle East and trans-Pacific liner services. With 34 dedicated service routes at the end of 2018, Wan Hai is the leading provider of intra-Asia container shipping services, with an estimated 15% market share.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.
Source: Moody’s