TRIS Rating Co., Ltd. has assigned the rating of “BBB” to the proposed issue of up to Bt1,000 million in senior debentures of Sansiri PLC (SIRI). At the same time, TRIS Rating has affirmed the company rating of SIRI at “BBB+” and has affirmed the rating of SIRI’s existing senior debentures at “BBB”. The outlook remains “stable The ratings reflect the company’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 the cyclical nature of the property development industry, increasing raw materials and labor costs, rising interest rate, and relatively high financial leverage.
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 developers. 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 August 2011, the company had 48 residential projects in its portfolio, a total worth of around Bt62,000 million. The portfolio consists of condominium (44% of the total portfolio value), single-detached house (SDH, 38%) and townhouse (18%) projects. The average unit price across the portfolio was Bt4 million. As of August 2011, the company’s total backlog was approximately Bt29,000 million, while the unsold value of its existing residential projects was around Bt17,000 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.
TRIS Rating said, 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. The company’s presales during the first eight months of 2011 slightly increased to Bt14,007 million, up 9% from Bt12,839 million during the same period of 2010. SDH and townhouse presales during the first eight months of 2011 grew by 76% and 39% from the same period of 2010, respectively. Condominium presales declined by 44% to Bt3,658 million in the first eight months of 2011, from Bt6,474 million in the same period of 2010. The drop was due to the launch of only one condominium project during the first eight months of 2011.
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 half of 2011 was Bt7,887 million, 26% lower than Bt10,697 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 six months of 2010 higher than normal. The gross profit margins improved during 2010 through the first half 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 13.06% in the first six 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 3.85% (non-annualized) during the first half 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 63%-64% as of December 2010 and June 2011.
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 more rapidly than expectation, demand for residential property has improved significantly since the second half of 2009. 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 reduce 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. TRIS Rating will closely monitor the effects of the government’s policies that are related to the property development industry, said TRIS Rating. -- End
Company Rating: Affirmed at BBB+ Issue Ratings: SIRI126A: Bt1,000 million senior debentures due 2012 Affirmed at BBB SIRI167A: Bt1,000 million senior debentures due 2016 Affirmed at BBB Up to Bt1,000 million senior debentures due within 2016 BBB Rating Outlook: Stable
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