TRIS Rating Co., Ltd. has assigned the rating of “BBB+” to the proposed issue of up to Bt1,000 million in senior debentures of Asian Property Development PLC (AP). At the same time, TRIS Rating has affirmed the company and current issue ratings of AP at “BBB+”. The outlook is “positive”. The ratings reflect AP’s successful track record in the residential property development industry; accepted brands targeting the downtown townhouse and condominium segments; and operating flexibility, which enables the company to promptly adjust the project portfolio to cope with industry trends. The strengths are partially offset by political instability, the cyclical nature of the property development industry and intense competition in land acquisitions.
The “positive” outlook reflects AP’s stronger market presence in condominium segment, underscored by past project successes and a steady rise in condominium’s bottom line contributions. The ratings should be upgraded if the company is able to sustain its strong operating performance momentum while maintaining the debt to capitalization ratio in the range of 45%-50%.
TRIS Rating reported that AP was established in 1990 by Mr. Anuphong Assavabhokhin and Mr. Pichet Vipavasuphakorn who together owns approximately one-third of the company. The company’s market strength stems from being a pioneer and leader in the downtown townhouse market (“Baan Klang Krung” and “Baan Klang Muang”). Strong business profile is underpinned by a leading position in townhouses and to a lesser extent condominiums, particularly in downtown areas. AP has demonstrated an ability to adjust its product portfolio in the face of a rapid change in consumer behaviors. Its products also attract the target group of young homebuyers. AP has shown a keen ability in selecting land plots in prime locations for project developments. Before 2005, AP’s revenue from townhouse projects contributed over 80% of total revenues. Revenues from condominiums have become a key growth driver since 2007 when their contributions were 35% and rose to 40%-50% during 2008-2009.
At the end of September 2010, AP had Bt21,891 million worth of project values available for sale. Condominiums accounted for 40% of the remaining project values. Meanwhile, townhouses and single detached houses (SDH) accounted for 29% and 31%, respectively. The average unit price across the portfolio was around Bt5 million. Condominium backlog stood at Bt20,216 million at the end of September 2010. Total condominium projects (backlog and available for sale) are expected to provide the company with revenues at approximately Bt6,500-Bt12,000 million per annum during 2011-2013. This should provide a good deal of cash flows visibility in the medium term and could serve as internal funding for the roll out of future projects.
TRIS Rating said, AP’s revenue surpassed Bt10,000 million for the first time in 2009, ranking it the fourth largest listed property developers in terms of revenue. With condominium backlog and a strong market position in the city townhouse segment, TRIS Rating expects the company to be able to sustain its top line performance in the medium term. AP’s profit margins had enjoyed benefits from government tax incentives and demonstrated a satisfactory level of stability. The operating income before depreciation and amortization ratio stood at 21.8% for the first nine months of 2010. The relatively stable levels of margins reflects AP’s cost control and price setting abilities. TRIS Rating expects the operating margin ratio to drop by 3%-4% after most of the government tax incentives expired in 2010 and market competition resumes on the back of an expected stronger economic growth. Greater stability in the rolls out of high-rise projects should allow the company to self finance new projects with cash inflows from the completed ones and thus alleviate pressures for external funding needs. The debt to capitalization ratio is expected to fluctuate narrowly at around 45%-50% in the medium term. Funds from operations (FFO) had risen steadily from around Bt1,300 million in 2006-2007 to Bt2,025 million in 2009 and Bt1,517 million in the first three quarters of 2010. TRIS Rating expects the company to continue to take a cautious stance on future expansion by balancing its investments with cash flow generations.
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 the momentum in 2010. Major developers continue to increase market share at the expense of smaller ones. After delivering favorable performances in 2010, 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 while most government tax incentives expired in 2010. TRIS Rating expects demand for residential property to recover alongside consumer confidence and growth in the domestic economy. -- End
Company Rating: Affirmed at BBB+ Issue Ratings: AP117A: Bt1,000 million senior debentures due 2011 Affirmed at BBB+ AP118A: Bt1,000 million senior debentures due 2011 Affirmed at BBB+ AP122A: Bt1,000 million senior debentures due 2012 Affirmed at BBB+ AP141A: Bt1,000 million senior debentures due 2014 Affirmed at BBB+ AP157A: Bt500 million senior debentures due 2015 Affirmed at BBB+ Up to Bt1,000 million senior debentures due within 2016 BBB+ Rating Outlook: Positive
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