TRIS Rating Co., Ltd. has affirmed the company rating of Noble Development PLC (NOBLE) at “BBB+” with “stable” outlook. The rating reflects NOBLE’s well-accepted brand in the middle- to high-end segments of the residential property market, product differentiation strategy, and large condominium backlog. However, the rating also takes into consideration a rising level of NOBLE’s financial leverage during the next few years from huge upcoming investments, an uncertain political situation in Thailand, the cyclical nature of the property development industry, and intense competition in land acquisition.
The “stable” outlook reflects the expectation that NOBLE will be able to maintain its satisfactory financial profile in the medium term. Despite more intense competition in the condominium segment, NOBLE’s profitability should be controlled at an acceptable level. The company is expected to sustain the current levels of cash flow protection and financial leverage despite the substantial capital requirements needed for construction of several condominiums including the Ploenchit project.
TRIS Rating reported that NOBLE is a medium-sized property developer in Thailand. The company was established in 1991 and listed on the Stock Exchange of Thailand (SET) in 1996. The Thanakitamnuay family and related families remain the company’s major shareholders with a combined 14% stake as of May 2010. The company has focused on developing condominium projects since 2006 as the market’s preference has shifted to urban living. At the end of August 2010, NOBLE had 17 existing projects available for sale with a remaining value of approximately Bt5,000 million. The company had a huge backlog of around Bt7,000 million to be delivered during the remainder of 2010 through 2014. The residential project portfolio comprises condominiums (64% of total project value), single detached houses (SDH, 21%), townhouses (10%), and land plots (5%). NOBLE’s unique designs through every product type differentiate its products from other developers.
TRIS Rating said, NOBLE’s presales rose sharply to Bt3,696 million in 2009 from Bt2,164 million in 2008. During the first eight months of 2010, presales increased by 66% to Bt3,267 million from the same period of the prior year. The growth was mainly supported by a continued good customer response for new condominium projects. The large backlog secures NOBLE’s future cash flows. The company’s total revenue was Bt2,805 million in 2009, up 19% from Bt2,352 million in 2008. Townhouse and land plot projects generated more revenue in 2009, while revenue from condominium and SDH projects decreased. During the first six months of 2010, total revenue grew steadily, rising by 12% to Bt1,426 million from Bt1,272 million in the same period of 2009. Revenue during the first half of 2010 was driven by higher revenue recognition from the progress of condominium construction and the sales of more pre-built SDH units. NOBLE’s financial profile in the first two quarters of 2010 sharply improved due primarily to large transfers of units in the Noble Remix and Noble Solo projects worth Bt3,356 million in total. As a result, the funds from operations (FFO) to total debt ratio was 36.23% (non-annualized) during the first six months of 2010, rising from 8.39% in 2009 and -2.99% in 2008. Its profitability benefited from the government tax incentives to transfer condominium units before June 2010. At 33.23%, NOBLE’s adjusted operating margin in the first half of 2010 was much higher than 19.51% in 2009 and 6.57% in 2008. The total debt to capitalization ratio improved to 40.42% as of June 2010, down from 46.97% and 44.01% at the end of December 2009 and 2008, respectively. Although the company’s financial position during the first six months of 2010 was better than during the last three years, NOBLE needs to demonstrate that it can maintain stable cash flows from operations.
The residential property market was volatile in 2009, reflecting the local political instability and the global financial crisis. However, the market recovered in the second half of 2009 and had sustained this momentum through the first nine months of 2010. Major developers continue to increase market share at the expense of smaller developers. After delivering favorable performances in 2009, almost all large developers have set quite aggressive expansion plans for the next two to three years. The acquisitions of land at appropriate locations will likely be more expensive. As most government tax incentives expired in 2010, demand for residential property will depend heavily on consumer confidence and the pace of economic recovery. TRIS Rating expects demand for residential property to recover alongside consumer confidence and growth in the domestic economy. -- End
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