TRIS Rating Co., Ltd. has assigned the company rating of Prinsiri PLC (PRIN) at “BBB-” with “stable” outlook. The rating reflects PRIN’s acceptable track record in the low-rise residential property development segment, improving profitability, and sufficient liquidity after implementing a strategy to sale plots of land that are not planned to develop in the near future. These strengths are partially offset by an unfavorable track record in the condominium segment, 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 PRIN will be able to maintain financial profile at acceptable level though presales will not be as strong as in 2010. The backlog is expected to be transferred to customers on schedule. Financial leverage is expected to be managed conservatively.
TRIS Rating reported that PRIN is a medium-sized residential property developer in Thailand. The company was established in 2000 by the Kovitchindachai family and listed on the Stock Exchange of Thailand (SET) in November 2005. The Kovitchindachai family continues to be the largest shareholder with a combined 60% stake at the end of March 2011. PRIN offers a wide range of products including single detached houses (SDH), townhouses, and condominiums. Its residential projects focus on the middle-income segment in Greater Bangkok. The small size of its low-rise projects provides flexibility for the company to develop each project in response to changing market preferences.
PRIN’s presales sharply increased to Bt4,017 million in 2010 from Bt2,056 million in 2009 and Bt2,386 million in 2008. The rise in presales was mainly supported by increased presales of condominiums and townhouses. After solving some troubles in condominium projects, the cancelled units were resold in 2010. Townhouse projects, under the Sixnature and CitySense brands, received good responses from customers. PRIN’s presales during the first quarter of 2011 were low because few new projects were launched. Presales in the first three months of 2011 declined by 65% to Bt397 million. Revenue in 2010 was Bt4,449 million, a 9% drop from Bt4,898 million in 2009, due primarily to a drop in revenue of SDH sales and one-time land plots sales. Revenue plunged to Bt438 million during the first quarter of 2011, much lower than the Bt1,258 million during the same period of 2010. A delay in project construction caused postponement in the delivery of units from the backlog. The sharp drop in revenue in the first quarter of 2011 caused selling and administrative expenses (SG&A) as a percentage of revenue to increase, cutting the operating profit margin. Cash flow protection also weakened as the funds from operations (FFO) to total debt ratio declined to 1.90% (non-annualized) in the first quarter of 2011 from 5.84% (non-annualized) in the same period of 2010. The ratio of total debt to capitalization remained at acceptable level though it deteriorated to 34.81% at the end of March 2011 from 31.67% as of December 2010.
TRIS Rating said, the Thai residential property market recovered in the second half of 2009; the momentum was sustained throughout 2010. Strong economic recovery, low interest rate environment, and stimulus packages from government tax incentive supported a favorable record of demand in housing in 2010. Many developers scaled-back their expansion plans in 2009. However, strong sales and abundant liquidity have encouraged increasingly aggressive strategies since late 2009. Most large developers have stepped up land acquisitions since late 2009. 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 plots at desirable locations will likely be more expensive. Demand for residential property has heavily depended on consumer confidence and the pace of the economic recovery after the government tax incentives expired in June 2010. The changes in the loan-to-value policy (LTV ratio) announced by the Bank of Thailand and rising interest rates are expected to reduce speculative demand and promote healthier growth for the residential property segment beginning in 2011. -- End
Company Rating: BBB- Rating Outlook: Stable
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