TRIS Rating Co., Ltd. has assigned a rating of “A” to the proposed issue of up to Bt500 million in senior debentures of TICON Industrial Connection PLC (TICON). At the same time, TRIS Rating has also affirmed TICON’s company rating and its current senior debentures ratings at “A” with “stable” outlook. The ratings reflect TICON’s leading position in the ready-built factory (RBF) industry, recurring cash flows from contractual rental income from factories and warehouses, and strong operating performance. The ratings also take into consideration the global economic recovery that is leading to improving manufacturing production for both domestic consumption and exports.
The “stable” outlook is based on the expectation that TICON will be able to maintain its leadership position in its niche market of rental factories. Increasing demand for factory and warehouse space caused by a global economic recovery will provide a cushion to TICON for any short-term effects from the recent earthquake and tsunami disasters in Japan.
TRIS Rating reported that TICON is the leading RBF provider in Thailand. It was established in 1990 and listed on the Stock Exchange of Thailand (SET) in 2002. The company has expanded its business scope and provided warehouse space for rent since 2005. As of December 2010, the company’s portfolio comprised 101 leased factories and 27 leased warehouses with a total leased space of 400,195 square meters (sq.m.), located in major industrial estates nationwide. During the past five years, the major portion of revenue (66%) came from selling assets to property funds, while 26% of total revenues were generated by rental factories and warehouses. Revenues from assets sold to TICON Property Fund (TFUND) and TPARK Logistics Property Fund (TLOGIS) were approximately Bt1,900 million per year between 2006 and 2010.
As of March 2011, TICON’s major shareholders remained Rojana Industrial Park PLC (Rojana; 20.5%); TICON’s management (9.9%); Thailand Equity Fund (5.3%); and City Realty Group (5.2%). The company’s competitive advantages stem from its proven record of providing quality RBFs to customers and its cost advantage in building standard factories at competitive prices by using an in-house construction team. According to CB Richard Ellis (CBRE), TICON and TFUND had a 65.8% combined market share in leased factory space as of December 2010. This share is far higher than peer companies, such as Pinthong Industrial Park Co., Ltd. (11.1%), Hemaraj Land and Development PLC (9.1%), Thai Factory Development PLC and Thai Industrial Fund 1 (7.4%) and Amata Corporation PLC (6.6%).
TRIS Rating said, TICON’s total income in 2010 increased by 17.3% to Bt2,783 million, driven by the economic recovery. Total rental income rose by 5.1% to Bt851 million due to a larger amount of leased area and higher renewal rates. The total occupancy rate (OR) also improved, rising to 77.8% as of December 2010 from 73.0% as of December 2009. The rise in the OR reflected a recovery in demand for factory space. In 2010, TICON sold 87,435 sq.m. of leased factories worth Bt1,738 million to TFUND and recorded a gross margin of 44.8% for this transaction. As of December 2010, total debt was Bt6,176 million. Its total debt to capitalization ratio declined to 52.5% at the end of 2010, reflecting higher profits for the year and the enlarged equity base from the exercise of warrants during 2010.
As of December 2010, 54% of TICON’s factory tenants and 22% of its warehouse tenants were Japanese firms. Most of them are in the automobile and electronics industries. Owing to the recent earthquakes and tsunami in Japan, current disruptions in the supply of components from Japan and transportation delays from and to Japan may have a negative effect on these industries in the short term. However, in the medium to long term, Japanese firms may increasingly consider relocating factories to a country with more stable geology and lower cost of production, like Thailand, said TRIS Rating. -- End
Company Rating: Affirmed at A Issue Ratings: TICON115A: Bt500 million senior debentures due 2011 Affirmed at A TICON118A: Bt500 million senior debentures due 2011 Affirmed at A TICON128A: Bt650 million senior debentures due 2012 Affirmed at A Up to Bt500 million senior debentures due within 2018 A Rating Outlook: Stable
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