TRIS Rating Co., Ltd. has revised the rating outlook of Property Perfect PLC (PF) to “negative” from “stable”. The downward outlook revision reflects PF’s deteriorating financial strength, resulting from high financial leverage and tightening financial flexibility. The severe flood crisis starting from October 2011 may slow or halt demand for single detached houses (SDH) and townhouses in heavy flooded areas. Due to PF’s relatively weak financial profile, its financial flexibility could worsen in the coming year. Thus, the ratings could be downgraded if demand for its residential properties does not recover in the next six to twelve months and/or if the company cannot manage its liquidity well enough to meet the debts coming due in the next 12 months. On the other hand, the outlook could be revised back to “stable” should its operating performance recovers farther than expected and the company has no liquidity concerns in the near term.
At the same time, TRIS Rating has affirmed the company rating of PF at “BBB-” and has affirmed the ratings of PF’s partially guaranteed debentures (PF132A) at “BBB”, senior secured debentures (PF128A) at “BBB”, senior secured debentures (PF123A and PF13NA) at “BBB-”, and senior debentures (PF12NA) at “BB+”. The ratings continue to reflect PF’s proven track record in the housing market and accepted brand name in the middle- to high-income segment. The ratings also take into consideration the cyclical nature of the property development industry and increasing raw material and labor costs. The issue rating of the PF132A debentures is enhanced by one notch from the company rating to reflect the 65% guarantee of the debenture amount by Thanachart Bank PLC (TBANK), a bank rated “A+” with “positive” outlook by TRIS Rating. The PF128A debentures issue is secured by two land plots worth 1.74 times the issue size and thus the rating is enhanced one notch from the company rating. The PF123A and PF13NA debentures are secured by land plots valued at 1.1 times the issue sizes. As a result, the issue ratings are equal to the company rating. Since most of PF’s debts are secured, the rating of PF’s senior debentures, PF12NA, is rated at “BB+”, one notch lower than the company rating.
TRIS Rating reported that PF is one of the leading residential property developers in Thailand. The company was established in 1985 by Mr. Chainid Ngowsirimanee and was listed on the Stock Exchange of Thailand (SET) in 1993. After concluding a debt-equity swap as part of debt restructuring program, the creditors became the major shareholders. As of May 2011, two creditors, Japan Asia Group Ltd. and Natee International Law Office Co., Ltd., together held 17.04% of the total outstanding shares.
TRIS Rating said, PF mainly focuses on residential property development. The company offers a broad range of residential products including SDHs, duplex houses, townhouses, and condominiums. Its products target the middle- to high-end segments, with selling prices per unit between Bt2.5-Bt20.0 million for SDHs, Bt1.7-Bt5.0 million for townhouses, and Bt1.0-Bt5.0 million for condominiums. The revenue from SDH projects remained the major source of income, constituting more than 60% of total revenue during 2006 through the first nine months of 2011. The revenue contribution of townhouse projects was 29% of total revenue during the first nine months of 2011, up from around 20% during 2009-2010. Revenue from condominium projects accounted for 7%, while the revenue contribution from sale of raw land plots was negligible in the first nine months of 2011. PF’s competitiveness is derived from its well-accepted brand name and large land holdings along future mass transit lines. The company differentiates its residential projects by providing grand central facilities to homeowners. This feature has become one of the company’s key selling points. However, the severe flood which began in October 2011 may lower its operating performance in the near term, since several of its projects are located in heavily flooded areas.
PF’s presales in 2010 reached a record high of Bt8,855 million, up 33% from Bt6,682 million in 2009. During the first eight months of 2011, presales was Bt6,962 million, a sharp increase from presales of Bt5,058 million during the same period of 2010. The growth in presales was mainly driven by higher presales at three I Condo projects launched in late 2010 plus improved townhouse presales. Presales of
SDH projects comprised the main portion of PF’s presales. The company’s revenue in 2010 was Bt8,616 million, up by 47% from Bt5,852 million in 2009. The jump in revenue in 2010 was the result of selling a large land plot worth Bt835 million to the University of the Thai Chamber of Commerce (UTCC). Revenue from the sale of SDH projects increased by 31% to Bt5,197 million in 2010. The sales of townhouse projects rose by 64% in 2010.
During the first nine months of 2011, the company’s total revenue slightly increased by 3% year-on-year (y-o-y) to Bt6,275 million from Bt6,069 million in the first nine months of 2010. An increase was due primarily to higher revenue from townhouses. Townhouses generated revenue of Bt1,795 million during the first nine months of 2011, growing from Bt1,055 million during the same period of 2010. Revenue from SDH and condominium projects also increased, while revenue from land plot sales declined in the first nine months of 2011. Profitability remained low compared with most leading property developers. Operating income as a percentage of sales was 11.30% in 2010 and 14.36% in the first nine months of 2011. Cash flow protection in 2010 deteriorated as the ratio of funds from operations (FFO) to total debt declined to 4.90% in 2010 from 9.45% in 2009. The ratio was 4.85% (non-annualized) during the first nine months of 2011. With more land acquisition and huge investments, especially in condominium projects, PF’s financial leverage continued to increase. The debt to capitalization ratio rose to 60.62% in 2010 and 62.32% as of September 2011, up from 48.73% in 2009.
Due to the heavy flooding which started to hit Bangkok and vicinity in October 2011, the sale of residential properties is expected to slow down, especially for the heavy flooded zones. Several developers might have a negative growth in revenue or even net losses in the last quarter of 2011. The government’s tax incentive scheme and zero-rate mortgage financing plans may not have a significant effect on the demand for residential property in the coming quarters, due to the negative consumer sentiment. Global economic uncertainties, the threat of rising costs from the possible enactment of the minimum-wage hike, and elevated leverage levels of most property developers, are key downside risks for the industry, said TRIS Rating. -- End
Company Rating: Affirmed at BBB- Issue Ratings: PF123A: Bt1,000 million senior secured debentures due 2012 Affirmed at BBB- PF128A: Bt800 million senior secured debentures due 2012 Affirmed at BBB PF12NA: Bt1,500 million senior debentures due 2012 Affirmed at BB+ PF132A: Bt1,500 million senior partially guaranteed debentures due 2013 Affirmed at BBB PF13NA: Bt1,000 million senior secured debentures due 2013 Affirmed at BBB- Rating Outlook: Negative from Stable
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