TRIS Rating Co., Ltd. has affirmed the company rating of Univentures PLC (UV) at “BBB” with “stable” outlook. The rating reflects the strong support from a major shareholder, Adelfos Co., Ltd. (Adelfos); the potential recurring income from an office rental project; and the ability to maintain a leading position in the zinc oxide (ZnO) business. These strengths are partially offset by a shorter track record as a property developer than other listed property development companies and increasing leverage to finance investments in property projects. The rating also takes into consideration the cyclical nature of the property development industry and the expectation of more intense competition as many large developers have aggressively acquired land since the second half of 2010.
The “stable” outlook reflects the expectation that UV will be able to develop and deliver its condominiums and huge commercial property project as scheduled. Park Ventures should begin generating income in the third quarter of 2011. UV’s financial profile is likely to weaken as the company will incur a higher debt burden than in the past. TRIS Rating also expects that profitability should improve in the next few years.
TRIS Rating reported that UV was founded in 1980 as a ZnO producer. The company started to shift its business focus to property development in 2000 by investing in a number of joint ventures (JV) with some listed property developers. The JVs have successfully launched more than 20 projects with a total combined project value over Bt17,000 million. UV’s controlling shareholder changed after Adelfos took 51.6% of its total shares in 2007 and as of March 2011, held 56.4%. Adelfos is owned by the second generation of the Sirivadhanabhakdi family, who still operates a number of property companies under the TCC Group. UV has focused more on property development by increasing its stake in Grand Unity Development Co., Ltd. (Grand U) to 60% in 2007. Grand U has developed several condominium projects under the U Sabai and U Delight brands, targeting the middle- to low-income segment. UV established Lertratakarn Co., Ltd. (LRK) in 2007 in order to develop a huge mixed-use commercial property project, Park Ventures. The project contains commercial office space for rent and a hotel. UV subleased the hotel to be invested and operated by TCC Luxury Hotel and Resort Co., Ltd. (TCCLH), an affiliate of its major shareholder. UV received Bt1,358 million lump sum leasehold payments from TCCLH to support construction of the project. The company will operate only the office space for rent when the project is completed in 2011.
UV’s presales from property development jumped to Bt3,397 million in 2010, up from Bt1,598 million in 2009. The significant growth was due primarily to the successful launch of U Delight @ Jatujak Station. Revenue from property development sharply grew to Bt1,139 million in 2010 from Bt463 million in 2009 because of a transfer of condominium units in U Delight @ Bangsue Station and U Sabai Rama 4-Kluaynamthai. Consequently, property development became a major portion (50%) of UV’s total revenue in 2010, while the revenue contribution from the ZnO business diminished to 48%. Despite improving, profitability remained lower than most listed property developers because gross margin of ZnO and other businesses was only 10% during the last three years. UV’s operating margin was 6.13% in 2010, up from 0.17% in 2009 and -0.76% in 2008. Cash flow protection during 2008-2010 had been supported by the advance receipts from TCCLH to pay construction costs for Park Ventures. Financial leverage has been higher than the past as debt was used to fund both condominium projects and development of the office building. The debt to capitalization ratio rose to 31.36% at the end of 2010 from 18.86% and 15.34% as of December 2009 and 2008, respectively.
TRIS Rating said the Thai residential property market recovered in the second half of 2009; the momentum was sustained throughout 2010. However, the market in 2010 was partly affected by the domestic political turmoil during the second quarter of 2010 and the government tax incentives which ended in June 2010. Major developers continued to increase their market shares at the expense of smaller developers. Almost all large developers have set aggressive expansion plans for the next few years. The prices of land at desirable locations will likely be more expensive. After the government tax incentives expired, demand for residential property will depend heavily on consumer confidence and the pace of economic recovery. The changes in the loan-to-value policy (LTV ratio) announced by the Bank of Thailand and upward trend of interest rates are expected to reduce speculative demand and promote healthier growth for residential property, beginning in 2011. -- End
Company Rating: Affirmed at BBB Rating Outlook: Stable
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