TRIS Rating Co., Ltd. has affirmed the company rating of Noble Development PLC (NOBLE) at “BBB+” with “stable” outlook. At the same time, TRIS Rating has assigned the rating of “BBB” to NOBLE’s proposed issue of up to Bt1,500 million in senior debentures. The proceeds from the issuance of the debentures will be used for debt repayment and residential project development. The ratings reflect the company’s well-accepted brand in the middle- to high-end segments of the residential property market, product differentiation strategy, and large condominium backlog. These strengths are partially offset by concentration risk of huge investment in single project, Noble Ploenchit, the company’s largest residential project worth approximately Bt14,000 million, and its relatively high debt level during the development period of this condominium project. The ratings also take 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 late 2009.
The “stable” outlook reflects the expectation that NOBLE will be able to deliver the backlog on schedule. Cash flow protection is expected to be strengthened when several condominium projects are transferred. Despite substantial capital requirements needed for Noble Ploenchit, the company is expected to maintain the debt to capitalization ratio at around its current level during the development period. An absorption rate of the Noble Ploenchit project should be in line with the company’s track records in order to maintain the current credit profile as the company invests substantial amount of money in this project mostly through debt financing.
TRIS Rating reported that NOBLE is a medium-sized property developer in Thailand. The company was established in 1991 and listed on the Stock Exchange of Thailand (SET) in 1996. The Thanakitamnuay family and related families remain the company’s major shareholders with a combined 14% stake as of May 2011. The company has focused on developing condominium projects since 2006 as the market preference has shifted to urban living. At the end of April 2011, NOBLE had 15 existing projects available for sale with a remaining value of approximately Bt3,700 million. The company had a backlog of around Bt6,100 million to be delivered during the remainder of 2011 through 2014. The residential project portfolio comprises condominiums (70% of total project value), single detached houses (SDH, 14%), townhouses (11%), and land plots (5%). NOBLE’s unique designs through every product type differentiate its products from other developers.
Presales of NOBLE was Bt3,759 million in 2010, slightly increasing from Bt3,696 million in 2009. The company’s presales in 2010 was mainly supported by a continued good customer response for new condominium projects, Noble ReD and Noble Revent. However, presales during the first four months of 2011 plunged to Bt412 million, significantly down from Bt1,755 million during the same period of 2010 as there was no new project launched in the first four months of 2011. Total revenue reached a record high at Bt5,105 million in 2010, up from Bt1,938 million in 2009. The growth was due primarily to huge transfer amount of Noble Remix, Noble Solo, and Noble Reflex. Revenue in the first quarter of 2011 sharply dropped to Bt523 million from Bt3,002 million in the same period of last year as a result of lower transfer volume. Declining revenue and higher debt deteriorated NOBLE’s financial profile. After the expiration of government tax incentives in mid-2010, the operating profit margin diminished to 26.48% in 2010 and 23.68% in the first quarter of 2011 and from 30.46% in 2009. NOBLE’s financial leverage at the end of March 2011 was relatively higher than other listed property developers. The total debt to capitalization ratio increased to 60.82% as of March 2011 from 57.53% in 2010 and 54.07% in 2009. Increasing debt mainly came from more investment in Noble Ploenchit.
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: Up to Bt,500 million senior debentures due within 2014 BBB Rating Outlook: Stable
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