Fitch Ratings (
This follows JWD's announcement of its merger with
The RWP reflects Fitch's view that JWD's credit profile should be stronger after the merger. The Rating Watch will be resolved once major conditions precedent to the transaction are met and more details on post-merger business strategy and financial projections are available.
After the merger, JWD will be an associate company of SCC with 42.9% indirect shareholding. Its financial statements will be consolidated with those of SCC, as the flagship company of the group providing logistics and supply-chain services to the group and third parties, in light of SCC's influence and control of the company.
Fitch will also review SCC's incentive to support the company, which could lead to an uplift on its standalone credit profile (SCP). This will be assessed under Fitch's Parent and Subsidiary Linkage Rating Criteria after details are available.
Key Rating Drivers
Stronger Business Profile after Merger: After the merger, JWD 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 as well as the cold chain business. We expect the merged entity's services to be more varied and integrated, given that the two companies' businesses do not overlap much and are complementary. JWD will have footprints in more countries after the merger, including
Improving Financial Profile: SCGL is in a net cash position as it operates with an asset-light model. Its EBITDAR net leverage should be 2.0x-3.0x, based on our preliminary estimate. The financial leverage of JWD (1H22: 6.5x) should therefore decrease significantly after the merger. Nonetheless, we will assess the sustainability of the company's financial leverage over the medium term to reflect the expansion and investment plan of the merged entity.
Derivation Summary
JWD is a major full-service inland logistics provider in
Its closest rating peer is
In comparison, JWD's business integration in logistic services and well-diversified customer base have cushioned the downturn and compensated for its lower earnings visibility. Its continued large capex and investment plan means JWD's financial leverage is likely to be close to SF's over the medium term, while SF has additional financing flexibility by virtue of low net debt as a percentage of investment properties at market value. This resulted in JWD being rated one notch below SF's SCP.
JWD's operating scale is significantly smaller than that of
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer (Pre-Merger):
About 15% revenue growth in 2022 from capacity expansion and first full-year consolidation of newly acquired subsidiaries in 2021, and about 10% revenue growth in 2023-2024;
EBITDA margin remaining at about 16% in 2022 before improving to about 18% in 2023-2024;
Total capex and investment of about
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The merger completes as planned with sustained EBITDAR net leverage below 6.0x.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Fitch may remove JWD's ratings from Rating Watch Positive if the merger does not complete;
EBITDAR net leverage is above 6.0x for a sustained period, if the merger fails.
Liquidity and Debt Structure
Manageable Liquidity: JWD's debt was
The company has adequate access to domestic banks, with unused but uncommitted banking facilities of
Issuer Profile
JWD is a
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