TRIS Rating Co., Ltd. has assigned a rating of “A” to the proposed issue of up to Bt500 million in senior debentures of TICON Industrial Connection PLC (TICON). At the same time, TRIS Rating has affirmed the company rating and the ratings of TICON’s current senior debentures 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 it receives from contractual rental income. The ratings also take into consideration the European debt crisis, which is affecting economic conditions and investment activity worldwide and may hinder TICON’s growth prospects. The “stable” outlook reflects the expectation that TICON will be able to maintain its leadership position in the niche market of providing rental factories and warehouses. A recovery in automotive manufacturing sector and investment activity should lead to increasing demand for factory and warehouse space, despite some concerns over global economic slowdowns.
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 expanded its business scope in 2005 and started providing warehouse space for rent. 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.). The facilities are 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) amounted to Bt1,500-Bt2,200 million per year between 2005 and 2010. However, the amount of assets sold to property funds declined to Bt944 million in 2011 due to the flooding in late 2011.
TRIS Rating said, as of May 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 for 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 provides warehouses for rent in six locations. 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 Hemaraj Land and Development PLC (12.4%), Pinthong Industrial Park Co., Ltd. (10.6%) , Thai Factory Development PLC and Thai Industrial Fund 1 (6.5%), and Amata Corporation PLC (5.9%).
Even though demand for leased factory space in the flooded areas has been noticeably slower after the flood, demand in non-flooded locations remains satisfactory. TICON reported a total leased area of 569,716 sq.m. for the first quarter of 2012. This represents a net increase of 12,574 sq.m. in leased area. The amount of space in leased warehouses increased by 19,649 sq.m., while the amount of space in leased factories decreased by 7,075 sq.m. The decline in the amount of leased factory space was mainly due to the contract termination of 12 factories in the flooded areas. These factories rented a total amount of 27,025 sq.m. of space.
For 2011 operation, despite a Bt100-million rental income loss as a result of the flooding, TICON’s total rental income continued to increase by 3% from Bt851 million in 2010 to Bt880 million in 2011. However, its net profit tumbled to Bt436 million in 2011, a drop of 47% from the 2010 level due to the delay in the planned sales of properties to TFUND from the fourth quarter of 2011 to 2012 and additional deferred income tax expenses recorded in order to reflect the change in the corporate income tax rate in Thailand. Earnings before interest, tax, depreciation, and amortization (EBITDA) also decreased by 30%, from Bt1,817 million in 2010 to Bt1,269 million in 2011.
In the first quarter of 2012, TICON’s total revenues were Bt997 million, mainly driven by the sales of assets to TFUND. TICON sold Bt762 million in assets to TFUND, with a gross margin of 49% on the transaction. TICON’s net profit for the first three months of 2012 was reported at Bt241 million. Most of TICON’s leased factories in flooded areas were renovated and handed over to tenants. The company’s rental income in the first quarter of 2012 recovered to Bt214 million, the same level recorded in the first quarter of 2011, but increased by 22% compared with the fourth quarter of 2011. The rental income is expected to return to normal in the second half of 2012.
TICON’s total debt leaped from Bt6,176 million at the end of 2010 to Bt9,499 million at the end of March 2012 due to the delay of asset sales to property funds to finance its capital expenditures. The company’s total debt to capitalization ratio rose to 61.4% as of March 2012, from 52.5% in 2010. However, the ratio is expected to improve should TICON sell approximately Bt3,500 million of assets to the property funds and successfully increase its capital in the second half of 2012, 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 TICON155A: Bt800 million senior debentures due 2015 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 Bt500 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.