TRIS Rating Co., Ltd. has assigned a rating of “A-” to the proposed issue of up to Bt1,200 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-” with “stable” outlook. The company will use the 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 own 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.
TRIS Rating said, for the first quarter of 2012, AP’s revenue stood at Bt3.2 billion, up 44% from the same period last year, driven by higher condominium transfers. TRIS Rating expects AP to generate respectable revenue in 2012 with limited exposure to market concerns over post flood-crisis. Most of the AP’s low-rise projects are located in inner city, which is considered flood-safe areas. In addition, AP expects to recognize around Bt6-Bt7 billion in revenue from high-rise projects in 2012.
AP’s ratio of operating income before depreciation and amortization as a percentage of revenue was 17.5% in the first quarter of 2012, down slightly from 19.9% in 2011. Flood-preventive and rising construction costs should impact profit margins in the short run. Growing contribution from AP’s new lower-priced segments is also expected 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 at the end of March 2012 stood at 56.2%. The high leverage level 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 their normal cycle.
TRIS Rating sees the residential property sector will continue to be driven mainly by favourable economic growth prospects. The sales of low-rise units in non-flooded areas should be rather healthy. However, sales of projects in the formerly flooded areas will be lackluster. A major clearance of inventories in the flooded areas is not expected at least until 2013. The industry’s growth momentum could be pulled back should the flood threats return in the second half of 2012 when the rainy season arrives. Labor shortages have increasingly become a major concern for property developers, forcing several developers to opt for a precast construction model, relying less on manpower. The minimum wage hike will put pressure on developers’ profit margins in the short run. Past performance shows that most developers are capable of eventually passing on the cost rises to buyers, said TRIS Rating. — End
Company Rating: Affirmed at A- Issue Ratings: 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- AP161A: Bt1,000 million senior debentures due 2016 Affirmed at A- Up to Bt1,200 million senior debentures due within 2017 A- Rating Outlook: Stable
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