TRIS Rating Co., Ltd. has affirmed the company and senior debenture ratings of TICON Industrial Connection PLC (TICON) at “A” with “stable” outlook. The ratings reflect the company’s proven record in the ready-built factory and warehouses business, recurring cash flows from contractual rental income, and sustainable operating performance. The ratings also take into consideration the improved political environment in Thailand after the recent general election. The deteriorating economic conditions in the US, the European community and Japan as well as the populist policies of Thailand’s new government are rating concerns.
The “stable” outlook reflects the expectation that TICON will be able to maintain its leadership position in the niche market of rental factories. An improvement in political stability in Thailand and a recovery in the automotive manufacturing sector should lead to increasing demand for new factory space despite rising concerns over uncertainty of global economy.
TRIS Rating reported that TICON is the leading provider of ready built factory (RBF) in Thailand. It was established in 1990 and listed on the Stock Exchange of Thailand (SET) in 2002. The company has expanded its business scope and provided warehouse space for rent since 2005. As of June 2011, the company’s portfolio comprised 115 leased factories and 42 leased warehouses with a total leased space of 516,865 square meters (sq.m.), located in major industrial estates in Thailand. In 2010, 30% of TICON’s total revenues were generated by rental factories and warehouses while the major portion of revenue (62%) came from selling assets to property funds. Revenues from assets sold to TICON Property Fund (TFUND) and TPARK Logistics Property Fund (TLOGIS) were Bt1,500-Bt2,200 million per year between 2005 and 2010.
TRIS Rating said, TICON’s major shareholders as of June 2011 remained Rojana Industrial Park PLC (Rojana) (21.5%); TICON’s management (9.6%); Thailand Equity Fund (2.3%); and City Realty Group (4.6%). The company’s competitive advantages stem from its proven record of providing quality RBFs to customers and its cost advantage in building standard factories at competitive prices by using an in-house construction team. TICON’s RBF and warehouses portfolio are geographically diversified. Currently, TICON provides RBF for rent in 13 locations and warehouses for rent in eight locations. TICON remains the leader in the RBF business in Thailand. According to CB Richard Ellis (CBRE), TICON and TFUND had a combined market share in leased factory space of 64.3% as of March 2011. This share is far higher than peer companies, such as Pinthong Industrial Park Co., Ltd. (11.8%), Hemaraj Land and Development PLC (10.0%), Thai Factory Development PLC and Thai Industrial Fund 1 (7.2%), and Amata Corporation PLC (6.7%).
Total leased space under management of TICON has gradually grown, rising by 15%-22% per annum during 2007-2010 or about 100,000-140,000 sq.m. per year. Only during the global economic crisis in 2009, the leased space increased by 5% over 2008 or an increase of 34,625 sq.m. However, the level is considered strong compared with the declines in leased area reported by most RBF developers in 2009. The continued growth was attributable to the strong performance of the warehouse business, which offset a drop in the RBF business. Total leased area owned by TICON after selling some assets to TFUND and TLOGIS increased gradually. TICON’s leased area rose to 400,195 sq.m. in 2010 from 344,943 sq.m. in 2006 or at a compound annual growth rate of 3.8%. During the same period, the company’s total rental income grew to Bt851 million in 2010 from Bt628 million in 2006. In the first half of 2011, the company’s total rental income continued to increase, climbing by 8% y-o-y to Bt454 million. TICON’s leased area of RBF and warehouse space jumped significantly by 29% from December 2010 to 516,865 sq.m. in the first half of 2011, compared with a 12% increase in the same period of 2010. The occupancy rate (OR) excluding preleased area for all TICON’s tenants improved to 84.4% as of June 2011 from 74.6% as of December 2010. The improvement in leased area as well as the rise in the OR reflected strong demand for factory and warehouse spaces. TICON’s gross margin of rental income remained high at 74.1% in the first half of 2011, despite a drop from 78.0% in the first half of 2010. This was attributable to higher contribution from lower-margin warehouse business and higher renovation cost. As of June 2011, the total debt to capitalization ratio remained moderate at 52.3%.
Looking forward, the outlook for RBF and warehouse demand remains positive, due to expectations of economic growth and a 34% y-o-y increase to Bt247.1 billion in the value of projects submitted to the Board of Investment’s (BOI) promotional privileges during the first half of 2011. The earthquakes and tsunami in Japan occurring in March 2011 that have disrupted the supply chains and reduced manufacturing activities in the automotive and electronics sectors was short lived. Recently, major auto producers announced that operations would increase to normal level in the second half of 2011 after a 50% cut in production during April and May 2011. As approximately 70% of TICON’s tenants operate in the electrical, electronics, and automotive industries, demand for rental factories is expected to increase in subsequent quarters, said TRIS Rating. -- End
Company Rating: Affirmed at A Issue Ratings: TICON128A: Bt650 million senior debentures due 2012 Affirmed at A TICON165A: Bt650 million senior debentures due 2016 Affirmed at A Rating Outlook: Stable
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