TRIS Rating Co., Ltd. has affirmed the company rating of SC Asset Corporation PLC (SC) at “BBB+”. At the same time,
TRIS Rating has assigned the rating of “BBB” to SC’s proposed issue of up to Bt2,000 million in senior debentures. The
outlook remains “stable”. The ratings reflect SC’s acceptable track record in the middle- to high-end segment of the
residential property market, as well as reliable cash flow stream from its rental property business, and its ability to
grow without incurring too much debts. The strengths are partly offset by the cyclical nature of the property development
industry, its gradually declining operating profit margin despite a higher margin than several listed property developers,
and the expectation that SC’s financial leverage will increase in the short to medium term since the company will have more
projects on hand than in the past. The “stable” outlook reflects the expectation that SC will be able to sustain its
acceptable financial profile in the medium term. Profitability might soften slightly from its current level due to lower
contribution of rental property, but is expected to remain strong. With its aggressive project expansion plans, the
company’s financial leverage is expected to increase but its debt to capitalization should be held below 50%.
TRIS Rating reported that SC is a medium-sized property developer which was founded in August 1989. After a
takeover by the Shinawatra family in 1995, the company began a rental property business by developing Shinawatra Tower 3
building. SC reorganized to focus on the residential property business in 2003. The company was listed on the Stock
Exchange of Thailand (SET) in November 2003. The Shinawatra family has continued to be the company’s major shareholder with
a 61.12% stake as of May 2011. SC offers a various type of residential products including single detached houses (SDH),
townhouses, home offices, and condominiums. Its existing residential products target middle- to high-income customers with
prices per unit ranging between Bt5-Bt100 million for SDH units, Bt3.5-Bt4 million for townhouses, and Bt5-Bt7 million for
home offices, with selling prices per square meter (sq.m.) of Bt70,000-Bt120,000 for condominium units. Sales of SDH units
have remained the major source of total revenue, constituting more than half of total revenue during 2010 through the first
half of 2011. Condominiums and townhouses accounted for around 20% and less than 10%, respectively. During 2010 through the
first six months of 2011, revenue from rental property fell to 12%-13% of total revenue from 17%-20% during 2008-2009. The
company focuses on developing small- to medium-scale residential projects tailored to meet customer preferences.
SC’s presales reached a record high of Bt5,014 million in 2010, up 13% from Bt4,427 million in 2009. Presales
during the first eight months of 2011 sharply increased to Bt4,701 million, up 72% from Bt2,729 million during the same
period of 2010. The growth in presales was mainly driven by higher presales of SDH and condominium projects. SDH presales
remained strong, growing significantly during 2010 through the first eight months of 2011. In contrast, townhouse presales
had decreased since the company launched only two townhouse projects in 2010, mostly focusing on SDH projects. Condominium
presales during 2010 through the first eight months of 2011 primarily came from Centric Ratchada Suthisarn project. Revenue
from residential property sales was Bt5,787 million in 2010, up 48% from 2009, due mainly to revenue increase from sales of
SDH units and condominium units in the Centric Scene Ratchavipa project. During the first half of 2011, residential sales
increased to Bt3,278 million from Bt2,345 million during the same period of 2010. Sales of SDH units continued to be the
growth driver while revenue from rental property has continued to be a reliable source of income. Revenue
from rental property held at Bt829 million per annum during 2009-2010 and rose to Bt429 million in the first six months of
2011 from Bt408 million in the same period of 2010.
SC’s profitability had been acceptable, supported by the high gross profit margin from rental property. The operating profit margin, at 24%-25% during 2010 through the first half of 2011, is considered strong compared with most listed property developers. SC’s liquidity remained acceptable. However, more project expansion during 2010 through the first six months of 2011 resulted in weaker cash flow protection. The funds from operations (FFO) to total debt ratio decreased to 26.5% in 2010 from 29.51% in 2009 and fell to 11.86% (non-annualized) in the first half of 2011 from 16.34% (non-annualized) in the same period of 2010. Financial leverage has been maintained at a low level. As of June 2011, the total debt to capitalization ratio was 36.2%. However, SC’s leverage is expected to increase in the near term due to its aggressive project expansion during 2011-2012. For the rest of 2011, TRIS Rating sees that SDH segment should continue to drive the market growth for property development industry. The townhouse segment should grow at a rate lower than the overall industry growth rate, given the current level of units available for sale. Performance in the condominium segment in 2011 should be on par with 2010. The growth in sales of condominium units will come from two key segments: units priced below Bt2 million in populated communities, and units over Bt5 million located along mass transit routes. The government’s tax incentive and zero-rate mortgage financing plans should also help stimulate demand in the coming quarters. Global economic uncertainties, along with domestic upward cost pressures from a possible enactment of the minimum-wage hike policy and elevated leverage levels of most property developers, are key downside risks for the industry. -- End
SC Asset Corporation PLC (SC)
Company Rating: Affirmed at BBB+
Issue Rating:
Up to Bt2,000 million senior debentures due within 2015 BBB
Rating Outlook: Stable
TRIS Rating Co., Ltd./www.trisrating.com
Contact: rapee@tris.co.th, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500,
Thailand
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