TRIS Rating Co., Ltd. has assigned a rating of “A-” to the proposed issue of up to Bt1,000 million in senior debentures of Asian Property Development PLC (AP). At the same time, TRIS Rating has affirmed the company and current issue ratings of AP at “A-”. The outlook remains “stable”. The company will use proceeds from the new debentures for working capital. The ratings reflect AP’s proven track record in the residential property development industry, stronger market presence in the downtown townhouse and condominium segments, and an improvement in product diversification. The strengths are partially offset by the cyclical nature of the property development industry, a potential rise in construction material prices, and an upward pressure on leverage in the medium term. The “stable” outlook reflects an expectation that AP will remain a high competitiveness in its core business franchise and will consistently be able to rebalance its product portfolio alongside market dynamic. The outlook is also based on the expectation that AP will continue to follow a prudent financial policy and bring down its debt to capitalization ratio below 50% in the medium term.
TRIS Rating reported that AP was established in 1990 by Mr. Anuphong Assavabhokhin and Mr. Pichet Vipavasuphakorn who together owns approximately one-third of the company. AP’s strong business profile reflects its leading position in downtown townhouses (“Baan Klang Krung” and “Baan Klang Muang”) and a solid track record in the middle- to high-end condominium segment. Over the past few years, AP has been able to deliver a strong growth profile while balancing cash realizations with inventory accretions. During 2010 to the first quarter of 2011, AP introduced three new brands to capture new product segments: “The Palazzo” (single-detached house (SDH) pricing over Bt10 million), “The Pleno” (townhouse pricing around Bt2 million), and “Aspire” (condominium pricing around Bt2 million).
For the first nine months of 2011, AP’s revenue stood at Bt10,758 million. TRIS Rating expects AP’s growth momentum would have a limited impact from the severe flood which started to hit Bangkok and vicinity in October 2011. Several of AP’s low-rise projects are located in inner city areas which are not flooded. In addition, AP expects to recognize around Bt6-Bt7 billion in revenue from high-rise projects in 2012, lowering its exposure to a slowdown in the low-rise segment.
TRIS Rating said, AP’s ratio of operating income before depreciation and amortization as a percentage of revenue was 20.1% in the first nine months of 2011, compared with 24.1% in 2010. The operating margin declined as anticipated given the expiration of government tax incentives. TRIS Rating expects growing contribution from AP’s new lower-priced segments to exert certain downward pressures to the otherwise relatively stable profit margins. This reflects higher market competition in the lower-priced segments from low-cost developers and buyers’ greater price sensitivity. However, TRIS Rating views the pressures to be compensated by benefits AP derives from broader product diversity.
AP’s ratio of debt to capitalization ratio rose from 52.9% in 2010 to 55.7% at the end of September 2011. Higher leverage reflects a rise in land acquisitions and inventory build-up. AP’s balance sheet is expected to gradually improve in the medium term as the transfer and new-launch schedules, particularly in condominiums, resume its normal cycle.
Due to the heavy flooding, 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 A- Issue Ratings: AP122A: Bt1,000 million senior debentures due 2012 Affirmed at A- AP141A: Bt1,000 million senior debentures due 2014 Affirmed at A- AP147A: Bt850 million senior debentures due 2014 Affirmed at A- AP147B: Bt400 million senior debentures due 2014 Affirmed at A- AP151A: Bt1,500 million senior debentures due 2015 Affirmed at A- AP157A: Bt500 million senior debentures due 2015 Affirmed at A- Up to Bt1,000 million senior debentures due within 2016 A- Rating Outlook: Stable
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