TRIS Rating Co., Ltd. has assigned the rating of “A” to the proposed issue of up to Bt1,000 million in senior debentures of TICON Industrial Connection PLC (TICON). At the same time, TRIS Rating has affirmed the company and current issue ratings of TICON at “A”. The outlook remains “stable”. The ratings reflect the company’s proven record in the ready-built factories (RBFs) and warehouses for rent plus the recurring cash flows from contractual rental income. The ratings also take into consideration that the manufacturing activity and investment in Thailand are improving after the severe flooding in the fourth quarter of 2011. The “stable” outlook reflects the expectation that TICON will be able to maintain its leadership position in the niche market of providing rental factories. Flood-affected properties are expected to return to normal operations in the second half of 2012. A promising investment outlook for Thailand should lead to increased demand for factory and warehouse spaces outside flood prone areas.
TRIS Rating reported that TICON is the leading provider of RBFs in Thailand. It was established in 1990 and listed on the Stock Exchange of Thailand (SET) in 2002. The company has expanded its business scope and provided warehouse space for rent since 2005. As of March 2012, the company’s portfolio comprised 122 leased factories and 58 leased warehouses with a total leased space of 569,716 square meters (sq.m.), located in major industrial estates in Thailand. From 2005 to 2010, 27% of TICON’s total revenue was generated by factories and warehouses for rent, while the major portion of revenue (65%) came from selling assets to property funds. Revenues from assets sold to TICON Property Fund (TFUND) and TPARK Logistics Property Fund (TLOGIS) were Bt1,500-Bt2,200 million per year between 2005 and 2010. However, the asset sales to property funds declined to Bt944 million in 2011 due to the flooding in late 2011.
TRIS Rating said, as of March 2012, TICON’s major shareholders remained Rojana Industrial Park PLC (Rojana) (21.5%), TICON’s management (7.3%), and City Realty Group (6.4%). The company’s competitive advantage stems from its proven record of providing quality RBFs to customers and its cost advantage in building standard factories at competitive prices by using an in-house construction team. TICON’s portfolio of RBFs and warehouses is geographically diversified. Currently, TICON provides RBFs for rent in 10 locations and warehouses for rent in six locations excluding the sites in preparation. TICON remains the leading provider of RBFs in Thailand. According to CB Richard Ellis (CBRE), TICON and TFUND had a combined market share in leased factory space of 64.6% as of December 2011. This share is far higher than peer companies, such as Pinthong Industrial Park Co., Ltd. (Pinthong 10.6%), Hemaraj Land and Development PLC (Hemraj 12.4%), Thai Factory Development PLC (TFD) and Thai Industrial Fund 1 (6.5%), and Amata Corporation PLC (Amata 5.9%).
Despite the severe flooding in late 2011, TICON’s total rental income continued to grow by 3% to Bt880 million from Bt851 million in 2010. TICON and its tenants halted operations in five locations since October 2011. The company lost Bt100 million of rental income in the fourth quarter of 2011. TICON also postponed the planned sales of properties to TFUND from the fourth quarter of 2011 to 2012. Lastly, TICON recorded additional deferred income tax expenses of Bt72 million to reflect the change in the corporate income tax rate in Thailand. The tax rate will change from 30% to 20%-23% in 2012-2014. These combined factors pulled its net profit down to Bt436 million in 2011, a drop of 47% from 2010. Earnings before interest, tax, depreciation, and amortization (EBITDA) decreased by 30% from 2010 to Bt1,269 million in 2011. The delay in the sale of property to the property fund drove TICON’s total debt to capitalization ratio to 60.4% in 2011 from 52.5% in 2010.
Even though demand for leased factories in the flooded areas has been noticeably slower after the flood, demand in non-flooded locations remains satisfactory. As of March 2012, TICON reported total leased area of 569,716 sq.m. or a net increase of 12,574 sq.m., excluding property sales, in the first quarter of 2012. The amount of space in leased warehouses increased by 19,649 sq.m., while space in leased factories decreased by 7,075 sq.m. The decline in leased factory space was mainly due to the contract termination of 12 factories renting a total of 27,025 sq.m. in the flooded areas.
TICON’s operations have gradually returned to normal and its rental income is targeted to return to normal level in the second half of 2012. Flood-related property damage amounted to Bt199 million and TICON lost its rental income of about Bt50-Bt60 million. Most of the losses will be reimbursed by insurance companies. Rental contract termination is expected to be lower in the subsequent quarters, after several flood relieve measures supported by government help rebuild investor confidence. The outlook for RBF and warehouse space demand remains positive due to expectations of an economic recovery in Thailand. In addition, the value of projects requesting to the Board of Investment (BOI) for promotional privileges during the first quarter of 2012 climbed to Bt231,000 million, a 107% year-on-year (y-o-y) increase. This total includes Bt25,717 million of the flood-related projects. These new investments will boost demand for leased factories, particularly for TICON’s RBFs and warehouses in non-flooded locations. This should more than offset the slowdown in the flooded area. TICON’s leverage level is expected to fall in 2012-2013 if TICON can sell its properties to property funds, as planned. TICON plans to sell properties worth Bt4,200 million to property funds in 2012, more than double the amount normally sold in a year, said TRIS Rating. — End
Company Rating: Affirmed at A Issue Ratings: TICON128A: Bt650 million senior debentures due 2012 Affirmed at A TICON141A: Bt800 million senior debentures due 2014 Affirmed at A TICON165A: Bt650 million senior debentures due 2016 Affirmed at A TICON171A: Bt100 million senior debentures due 2017 Affirmed at A TICON187A: Bt350 million senior debentures due 2018 Affirmed at A Up to Bt1,000 million senior debentures due within 2017 A Rating Outlook: Stable
TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand Copyright 2012, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.