Fitch Ratings has affirmed
The Outlook is Stable.
The company's ratings reflect its strong business profile, geographical diversification, stable cash flow generation from its high-quality port, retail, infrastructure and telecommunication businesses, and management's strong record of prudent financial management.
The Stable Outlook reflects our view that its financial profile will continue to be robust, despite sluggish earnings in 2023 due to a challenging operating environment, especially in its telecom and port divisions.
Key Rating Drivers
Operating Environment Remains Challenging: Fitch expects CKHH's operations to remain sluggish in 2023 due to deterioration in the European telecom division, reduced dividends in the infrastructure segment and headwinds in the port business.
We expect port earnings to be affected by throughput decline and reduction in storage income, which had increased in 2022 due to supply chain disruptions. However, the earnings deterioration should be partially offset by robust earnings in the retail division and higher investment income. We expect a modest recovery in its major segments in 2024, especially in the telecom division.
CKHT Earnings Recovery from 2024: Fitch expects the contribution from its European telecom entity,
Stable Infrastructure Cash Flow: Fitch expects infrastructure cash flow to be slightly lower, reflecting the more stringent regulatory resets that came into effect over the past few years for
Asset-Light Strategy: The company is pursuing an asset-light strategy in the telecom division. In
We believe both transactions, if completed, will have a limited impact on the company's credit profile as we expect a slight improvement in financial metrics with one-off proceeds and reduced capex offsetting the drop in revenue and earnings contribution.
Robust Financial Profile: CKHH's balance sheet has improved in recent years, supported by tower asset sale proceeds. Its EBITDAR net leverage improved to 3.4x in 2022 from 3.5x in 2021 as it reduced debt with the asset sale proceeds and lower capex in the telecom division. We expect EBITDAR net leverage to rise slightly in 2023 due to lower earnings but improve gradually over the next two-to-three years with the modest earnings recovery. We expect capex to rise in 2023 with capacity expansion in ports and increased store openings in the retail division before moderating in 2024-2025.
Structural Subordination Risk Mitigated: CKHH's port, infrastructure and telecom businesses are capital intensive and raise leverage, which constrains the ratings. There is also some structural subordination of cash flow, especially in utility and infrastructure assets, as there is debt at the asset-owning level and the operating cash flow of these businesses can only be accessed via dividends. However, cash from businesses other than infrastructure or CKHT and dividend inflow can cover the parent's interest burden, mitigating the structural subordination risk.
Derivation Summary
CKHH's ratings are supported by its business diversification by geography and segment, which provides stable cash flows and underpins its strong business profile. A solid record of conservative and prudent financial management and a coherent strategy also support the business profile.
Few peers have similar business models, as CKHH is a conglomerate with infrastructure, port, retail and telecom segments. It is somewhat comparable with
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer:
Fitch-adjusted revenue to rise by 1%-3% in 2023-2024
Fitch adjusted EBITDA margin of 22%-23% in 2023-2024
Dividend payout ratio of 30%
Capex of
No major acquisitions or disposal in 2023-2024. We have not reflected the sale of the network asset company or the merger of the
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
Provided CKHH's business profile remains unchanged:
EBITDAR net leverage of 3.1x or less on a sustained basis; and
Positive free cash flow (FCF) after acquisitions and dividends for a sustained period.
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
EBITDAR net leverage exceeding 4.1x for a sustained period;
Substantially negative FCF after acquisitions and disposals;
Significant changes in the business mix and capital structure management that are adverse to its credit risk profile;
Weakening quality or decreased quantity of recurring cash.
Liquidity and Debt Structure
Strong Liquidity, Access to Funding: CKHH's ratings are supported by its robust liquidity profile and easy access to capital. Reported cash and cash equivalents were
Issuer Profile
CKHH is a
Summary of Financial Adjustments
Fitch has made adjustments related to lease liabilities as per our Corporate Rating Criteria. Depreciation, amortisation and interest expense are reclassified as operating costs in the income and cash flow statements. Fitch has adjusted the debt by adding 8x annual operating lease expense in the retail segment.
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.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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