TRIS Rating Co., Ltd. has affirmed the company rating of Univentures PLC (UV) at “BBB” with “stable” outlook. The rating reflects the strong support from a major shareholder, Adelfos Co., Ltd. (Adelfos), a potential reliable stream of income from an office rental project, the improved operating performance of the property development business, and UV’s ability to maintain its leading position as a zinc oxide (ZnO) producer. These strengths are partially offset by the company’s relatively short track record as a residential and rental property developer, profit margins which are lower than the margins of other listed property development companies, and weakening financial profile due to higher debt financing for the company’s property business. The rating also takes into consideration the cyclical nature of the property development industry. The “stable” outlook reflects the expectation that UV will be able to develop and deliver its condominium projects as scheduled. Park Ventures should generate a reliable source of rental income when the project is fully operational in 2012. Since the company focuses more on property development business, leverage is expected to be higher than in the past. However, a significant rise in debt, which pushes the debt to capitalization ratio over 60% for a prolonged period, could negatively impact the company’s rating or outlook. On the other hand, an improvement in the company’s profitability to be comparable with other leading property developers while keeping its leverage low will be positive for the company’s rating.
TRIS Rating reported that UV was founded in 1980 as a ZnO producer. The company started to shift its business focus to property development in 2000 by investing in a number of joint ventures with some listed property developers. UV’s controlling shareholder changed after Adelfos took 51.6% of the total shares in 2007 and held 56.4% as of December 2011. Adelfos is owned by the second generation of the Sirivadhanabhakdi family, which owns and operates a number of property companies under the TCC Group. UV has focused more on property development by increasing its stake in Grand Unity Development Co., Ltd. (Grand U) to 60% in 2007. Grand U has developed 16 condominium projects since its inception. Its condominiums target the middle- to low-income segments. UV established Lertratakarn Co., Ltd. (LRK) in 2007 in order to develop a mixed-use commercial property project, Park Ventures. The project contains commercial office space for rent, retail space, and a hotel. UV subleased the hotel to TCC Luxury Hotel and Resort Co., Ltd. (TCCLH), an affiliate of its major shareholder. UV will mandate the rental of the office and retail space.
TRIS Rating said, UV’s condominium presales dropped by 30% year-on-year (y-o-y) to Bt2,392 million in 2011 as slower speed of presales than in 2010. Presales during the first two months of 2012 were Bt470 million, rising from Bt100 million during the same period of 2011. Revenue from the sale of condominium units sharply increased to Bt2,545 million in 2011, from Bt1,139 million in 2010. The growth came because finished condominium units in the U Delight @ Huaykwang Station and U Delight @ Jatujak Station projects were transferred to customers. Revenue from the ZnO and other businesses diminished by 8% y-o-y to Bt1,044 million in 2011 as production in two ZnO factories was temporarily halted for two months during the severe flood in the fourth quarter of 2011. The office and retail space in Park Ventures generated rental income of Bt13 million in 2011 as the project opened in September 2011. UV’s profitability improved as the operating profit margin increased to 10.46% in 2011 from 6.13% in 2010 and 0.17% in 2009. Despite a greater profit margin contribution from the property development business, the company’s operating profit margin remained relatively lower than other listed property developers. Financial leverage increased sharply in 2011 since the company used more debt to finance its condominium and rental property projects. The debt to capitalization ratio rose to 55.42% at the end of 2011, from 32.24% and 17.36% as of December 2010 and 2009, respectively. Cash flow during 2008-2011 was enhanced by the advance receipts from TCCLH to fund the construction costs of Park Ventures. However, the sharp rise in debt deteriorated UV’s cash flow protection. Subsequently, the funds from operations (FFOs) to total debt ratio weakened to 15.86% in 2011, down from 36.02% in 2010 and 88.56% in 2009, said TRIS Rating. — End
Company Rating: Affirmed at BBB Rating Outlook: Stable
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