TRIS Rating Co., Ltd. has affirmed the company rating of Sansiri PLC (SIRI) at “BBB+”. At the same time, TRIS Rating has also affirmed the rating of SIRI’s senior debentures at “BBB”. The outlook is “stable”. The ratings reflect SIRI’s leading position and proven record in the residential property industry, well-recognized condominium brand, diversified product portfolio, and strong backlog partly securing the company’s revenue stream. These strengths are partially offset by a relatively high level of financial leverage. The rating also takes into consideration the cyclical nature of the property development industry and the expectation of more intense competition as many developers have been aggressively acquiring land since the second half of 2010.
The “stable” outlook reflects the expectation that SIRI will be able to deliver a large amount of its backlog on schedule. Liquidity is expected to be strengthened after the company transfers several condominium projects during the remainder of 2011 through 2013. Operating profit margin is challenged to be in the same level as other leading property developer. Despite the continued aggressive project expansion, financial leverage should not be deteriorated from its current level.
TRIS Rating reported that SIRI is one of the leading property developers in Thailand. As of March 2011, the company had 53 residential projects in its portfolio, worth a total of around Bt65,000 million. The portfolio consists of condominium (49% of the total portfolio value), single-detached house (SDH, 34%) and townhouse (17%) projects. The average unit price across the portfolio was Bt4 million. As of March 2011, the company’s total backlog was approximately Bt25,000 million, while the unsold value of its existing residential projects was around Bt23,000 million. SIRI’s main competitive edges were derived from its well-accepted brand, strong marketing strategies and the good quality of its products, especially in the condominium segment.
SIRI’s presales reached a record high of Bt24,995 million in 2010, sharply increasing from Bt13,964 million in 2009 and Bt10,446 million in 2008. The growth was primarily driven by rising presales of condominiums. Most condominium projects launched in 2010 received good responses from customers. Condominium presales escalated to Bt14,486 million in 2010, much higher than the level of Bt6,315 million recorded in 2009. Presales during the first quarter of 2011 slightly dropped to Bt4,436 million, down 5% from Bt4,683 million during the same period of 2010. High presales volume led to strong backlog. SIRI’s total revenue increased by 18% to Bt18,596 million in 2010, up from Bt15,824 million in 2009. Total revenue in the first three months of 2011 was Bt3,614 million, 47% lower than Bt6,811 million in the same period of 2010. The drop in revenue resulted from an expiration of government tax incentives in mid-2010, which boosted residential demand in the first quarter of 2010 higher than normal. The gross profit margins improved during 2010 through the first quarter of 2011. However, the expiration of the government tax incentives and more marketing spending drove selling and administrative expenses (SG&A) higher. Thus, the ratio of adjusted operating income as a percentage of sales decreased to 15.03% in 2010 and 12.08% in the first three months of 2011 from 18.19% in 2009. Cash flow protection has weakened as the ratio of funds from operations (FFO) to total debt dropped to 10.24% in 2010 from 12.05% in 2009. The ratio was only 1.36% (non-annualized) during the first quarter of 2011. An aggressive expansion during the last few years pushed financial leverage relatively higher than most listed property developers. The debt to capitalization ratio had been 62%-63% as of December 2010 and March 2011.
TRIS Rating said, demand for housing depends mostly on consumer confidence and the economic environment. The government usually provides supports for this industry during an economic downturn. Due to the government tax incentives scheme offered during 2008-2010 and the domestic economy which recovered faster than expected, demand for residential property has improved significantly since the second half of 2009. However, the momentum was maintained throughout 2010. Several developers have stepped up land acquisitions since late 2009 which caused the industry-wide leverage level to increase significantly in 2010. The changes in the loan-to-value policy (LTV ratio) implemented by the Bank of Thailand (BOT) in 2011 and rising interest rates are expected to curb the speculative demand in the condominium segment and the affordability of housing for the low-income segment. Therefore, the growth rate of this industry is expected to be lower this year compared with the previous year. However, large developers are expected to gain more market share at the expense of smaller developers as several major developers have diversified by entering the low-priced housing segment. This move will cause the competition in this segment to be more intense than before. -- End
Company Rating: Affirmed at BBB+ Issue Rating: SIRI126A: Bt1,000 million senior debentures due 2012 Affirmed at BBB Rating Outlook: Stable
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