TRIS Rating Co., Ltd. has assigned the rating of “A-” to the proposed issue of up to Bt1,300 million in senior debentures of Quality Houses PLC (QH). At the same time, TRIS Rating has affirmed the company and current issue ratings of QH at “A-” with “negative” outlook. The company will use proceeds from the new debentures for working capital. The ratings reflect the company’s established track record in the property development industry, strong position in the middle- to high-income housing market and diverse revenue sources with recurring income from commercial properties and investment portfolio. The ratings also take into consideration the company’s financial flexibility from strategic investments in associated companies. The strengths are partially offset by the cyclical nature of the property development industry, expected rise in raw material and labor costs, and the relatively high level of financial leverage compared with industry peers. The “negative” outlook reflects an expected deterioration in QH’s credit profile in the aftermath of the flood crisis. The outlook could be revised back to “stable” should the company demonstrate an ability to adapt and generate growth while keeping its leverage level down. However, the ratings could be downgraded if QH requires longer time to restore its product competitiveness and financial strengths.
TRIS Rating reported that QH was established in 1983 by Land & Houses PLC (LH). The company is one of the leading property developers in Thailand. As of June 2011, QH’s major shareholders were LH (25%) and the Government of Singapore Investment Corporation Pte. Ltd. (11%). QH has a strong market position, particularly in the mid- to high-end single-detached house (SDH) segments. The company’s management team has consistently demonstrated high competency in developing competitive housing products under various pricing segments and product platforms.
In the aftermath of the flood crisis, TRIS Rating believes that excess low-rise residential units in flooded areas, uncertain shifts in market behaviors, and flood-related costs pose challenges for QH to adjust its business models and re-build consumer confidence. The company’s performance is expected to recover slower than lesser-impacted industry peers. This will likely put QH’s profit margin and debt service capacity under an extended stress.
QH’s revenue for the first nine months of 2011 is under expectation. Its profit margin remains under pressure due to a constant growth in operating costs. At the end of September 2011, the debt to capitalization ratio stayed at 61.8%, up from 52.4% in 2010. TRIS Rating expects an extent of pressure on QH’s leverage to stay elevated in 2012 in order to support the company’s development costs for new projects. QH’s liquidity profile remained satisfactory, though weakened in recent quarters. The company’s liquidity is enhanced by its sizable holdings of marketable securities.
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
QH123A: Bt600 million senior debentures due 2012 Affirmed at A- QH123B: Bt1,300 million senior debentures due 2012 Affirmed at A- QH127A: Bt1,500 million senior debentures due 2012 Affirmed at A- QH127B: Bt1,000 million senior debentures due 2012 Affirmed at A- QH135A: Bt1,000 million senior debentures due 2013 Affirmed at A- QH136A: Bt1,000 million senior debentures due 2013 Affirmed at A- QH143A: Bt2,000 million senior debentures due 2014 Affirmed at A- QH144A: Bt2,000 million senior debentures due 2014 Affirmed at A- QH152A: Bt1,600 million senior debentures due 2015 Affirmed at A- QH168A: Bt1,400 million senior debentures due 2016 Affirmed at A- Up to Bt1,300 million senior debentures due within 2012 A- Rating Outlook: Negative
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