TRIS Rating Co., Ltd. has affirmed the company rating of Property Perfect PLC (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+”. At the same time, TRIS Rating assigns the ratings of “BBB” to two issues of PF’s 2-year and 3-year partially guaranteed debentures with combined value of up to Bt2,500 million with “negative” outlook. Both issues are partially guaranteed by Thanachart Bank PLC (TBANK), the bank rated by TRIS Rating at “AA-” with “stable” outlook. TBANK guarantees to pay up to Bt1,500 million or 60% of the amount of the proposed debentures. The proceeds from the issuance of the new debentures will be mainly used to repay PF’s short-term debts. The ratings of PF reflect the company’s proven track record in the housing market and accepted brand name in the middle- to high-income segment. These strengths are partly offset by PF’s high financial leverage and tightening financial flexibility. The ratings also take into consideration the cyclical nature of the property development industry and increasing raw material and labor costs. The “negative” outlook reflects PF’s deteriorating financial strength, resulting from high financial leverage and tightening financial flexibility. The flood crisis may slow or halt demand for SDHs 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 12 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 faster than expected and the company has no liquidity concerns in the near term.
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 company’s major shareholders. As of May 2011, two creditors, Japan Asia Group Ltd. and Natee International Law Office Co., Ltd., together held 17.04% of PF’s total outstanding shares.
TRIS Rating said, PF mainly focuses on residential property development. The company offers a broad range of residential products including single detached houses (SDH), 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 2007-2011. The revenue contribution of townhouse projects was 26% of total revenue in 2011, up from around 20% during 2009-2010. Revenue from condominium projects accounted for 13%, while the revenue contribution from sale of raw land plots was negligible in 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 occurring in late 2011 may affect its operating performance in the near term, since some of its projects are located in heavily flooded areas, namely Rangsit, Bangyai, and Bangbuathong.
Presales of PF in 2011 reached a record high of Bt9,939 million, up 12% from Bt8,855 million in 2010. The growth in presales was mainly driven by higher presales at four I Condo projects plus improved townhouse presales. Presales of SDH projects comprised the main portion of PF’s presales. Total revenue in 2011 was Bt8,081 million, down 6% from Bt8,616 million in 2010. The drop was due mainly to lower revenue from both SDH and land plot. Revenue from SDH dropped by 7% y-o-y to Bt4,838 million in 2011. Sale of land plots declined to Bt81 million in 2011 from Bt835 million in 2010 since in 2010 the company sold a large land plot to the University of the Thai Chamber of Commerce (UTCC). Revenue from townhouse and condominium projects in 2011 increased by 16% and 38% y-o-y, respectively. Profitability remained low compared with most leading property developers. Operating income as a percentage of sales was 11.30% in 2010 and 12.51% in 2011. Cash flow protection deteriorated, as the ratio of funds from operations (FFO) to total debt declined to 4.90% in 2010 and 5.70% in 2011 from 9.45% in 2009. With more land acquisition and huge investments, especially in condominium projects, PF’s financial leverage was high. The debt to capitalization ratio stood at 60.62% in 2010 and 61.75% in 2011.
Due to the heavy flooding in late 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- Up to Bt500 million senior partially guaranteed debentures due 2014 BBB Up to Bt2,000 million senior partially guaranteed debentures due 2015 BBB Rating Outlook: Negative
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