TRIS Rating Co., Ltd. has upgraded the company and current senior debenture ratings of Asian Property Development PLC (AP) to “A-” from “BBB+”. At the same time, TRIS Rating has assigned the rating of “A-” to AP’s proposed issue of up to Bt1,500 million in senior debentures. The rating outlook has been changed to “stable” from “positive”. The rating upgrades reflect AP’s proven track record in the residential property development industry, stronger market presence in the downtown townhouse and condominium segments, and an improvement in product diversification. The strengths are partially offset by the cyclical nature of the property development industry, political instability, and an upward pressure on leverage in the medium term.
The “stable” outlook reflects an expectation that AP will remain a high competitiveness in its core business franchise and will consistently be able to rebalance its product portfolio alongside market dynamic. The ratings are also based on the expectation that AP will continue to follow a prudent financial policy and bring down its debt to capitalization ratio below 50% in the medium term.
TRIS Rating reported that AP was established in 1990 by Mr. Anuphong Assavabhokhin and Mr. Pichet Vipavasuphakorn who together owns approximately one-third of the company. AP’s strong business profile reflects its leading position in downtown townhouses (“Baan Klang Krung” and “Baan Klang Muang”) and a solid track record in the middle- to high-end condominium segment. Over the past few years, AP has been able to deliver a strong growth profile while balancing cash realizations with inventory accretions. During 2010 to the first quarter of 2011, AP introduced three new brands to capture new product segments: “The Palazzo” (SDH pricing over Bt10 million), “The Pleno” (townhouse pricing around Bt2 million), and “Aspire” (condominium pricing around Bt2 million).
TRIS Rating said, AP’s revenue surpassed Bt10,000 million for the first time in 2009. In 2010, its revenue stood at Bt13,840 million, ranking it the fourth largest listed property developers in terms of revenue. Revenue from condominiums comprised half of its total revenue in 2010. TRIS Rating expects AP’s revenue to grow respectably over the next few years. At the end of March 2011, AP’s condominium backlog stood at Bt21 billion. The condominium backlog already helps secure almost half of AP’s revenue in the next few years: Bt8 billion in 2011, Bt6 billion in 2012, and Bt7 billion in 2013. Revenue growth in the low- rise segment is expected to be driven by the company’s low-rise projects available for sales (including built and un-built units) worth Bt16 billion and low-rise backlog of Bt1.9 billion at the end of March 2011 as well as low-rise projects to be launched during the last three quarters of 2011, worth a total of Bt6.5 billion.
AP’s ratio of operating income before depreciation and amortization as a percentage of revenue was 19.2% in the first quarter of 2011, compared with 24.1% in 2010. The operating margin declined as anticipated given the expiration of government tax incentives. TRIS Rating expects growing contribution from AP’s new lower-priced segments to exert certain downward pressures to the otherwise relatively stable profit margins. This reflects higher market competition in the lower-priced segments from low-cost developers and buyers’ greater price sensitivity. However, TRIS Rating views the pressures to be compensated by benefits derived from broader product diversity. AP’s ratio of debt to capitalization ratio rose from 49.7% in 2009 to 56% in the first quarter of 2011. Higher leverage reflects a surge in land acquisitions in 2010 as a result of a significant slowdown in new projects launched during 2008 to the first half of 2009. TRIS Rating expects AP’s balance sheet to gradually improve in the medium term as the transfer and new-launch schedules, particularly in condominiums, resume its normal cycle.
TRIS Rating said about the demand for housing that it 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 faster-than-expected economic recovery, demand for residential property has improved significantly since the second half of 2009. The momentum had sustained throughout 2010. Several developers had stepped up land acquisitions since late 2009, pushing up the industry-wide leverage level 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 speculative demand in the condominium segment and reduce 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. Large developers are expected to gain more market share at the expense of smaller developers. Several major developers have diversified by entering the low-priced housing segment. This move will cause competition in this segment to be more intense than before. -- End
Company Rating: Upgraded to A- from BBB+ Issue Ratings: AP117A: Bt1,000 million senior debentures due 2011 Upgraded to A- from BBB+ AP118A: Bt1,000 million senior debentures due 2011 Upgraded to A- from BBB+ AP122A: Bt1,000 million senior debentures due 2012 Upgraded to A- from BBB+ AP141A: Bt1,000 million senior debentures due 2014 Upgraded to A- from BBB+ AP147A: Bt850 million senior debentures due 2014 Upgraded to A- from BBB+ AP147B: Bt400 million senior debentures due 2014 Upgraded to A- from BBB+ AP157A: Bt500 million senior debentures due 2015 Upgraded to A- from BBB+ Up to Bt1,500 million senior debentures due within 2015 A- Rating Outlook: Stable from Positive
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