TRIS Rating Co., Ltd. has assigned a “A” rating to the new senior debentures (MBK227A) worth Bt500 million of MBK PLC (MBK). At the same time, TRIS Rating has affirmed the company and current issue ratings of MBK at “A” with “stable” outlook. The proceeds from the proposed debenture issue will be used to refinance its existing debt and for future investments. The ratings reflect the stable cash flows from MBK’s contract-based retail property business, a close relationship with the Thanachart Group, and a high level of financial flexibility from its sizable investments in marketable securities. These strengths are partially offset by an upcoming rise in its operating costs as a new leasehold contract for MBK Center takes effect in 2013. The “stable” outlook reflects the expectation that MBK will continue to receive reliable cash flows from its rental property. The company is expected to maintain the quality of its motorcycle loan portfolio through its stringent loan approval and collection procedures. With moderate amounts of capital expenditures planned for 2012-2013, the company is expected to maintain its current leverage level, as measured by the total debt to capitalization ratio.
TRIS Rating reported that MBK was established in 1974. Thanachart Capital PLC (TCAP) and other companies in the TCAP Group are MBK’s major shareholders, holding a 20% stake in total. MBK is currently engaged in many business segments: retail property for rent, hotels, golf courses, residential property development, rice, and financial services. MBK owns and operates MBK Center, a well-known shopping center located on leasehold land close to the Siam Square shopping district in downtown Bangkok. Despite its diverse business portfolio, the company’s performance continues to be reliant on its two core properties, MBK Center and the Pathumwan Princess Hotel. In the first quarter of 2012, the two properties generated approximately 33% of MBK’s revenue and 57% of its cash flow.
TRIS Rating said, to mitigate business concentration risk, MBK has gradually expanded its retail property development business. The company has a 31% stake in Siam Piwat Co., Ltd., which owns and operates several shopping centers in the Siam Square area. Siam Piwat owns 100% of Siam Center (19,000 square meters (sq.m.)) and Siam Discovery Center (23,200 sq.m.) and has a 50% interest in Siam Paragon (186,010 sq.m.). In addition, a 50:50 joint venture (JV) between MBK and Siam Piwat renovated and reopened the Paradise Park (formerly Seri Center) shopping mall (90,177 sq.m.) in July 2010. In August 2011, MBK launched its first community mall on Rama IX road, The Nine Neighborhood Center, which has retail space and office space of 12,873 sq.m. and 8,979 sq.m., respectively. As of March 2012, MBK’s portfolio of retail property and office space totaled 205,251 sq.m. and 57,895 sq.m., respectively.
For the hotel business, currently, MBK owns and operates six hotels in key tourism provinces of Thailand, with a total of 972 rooms. Due to strong demand in the tourism industry, the average occupancy rate (OR) of MBK’s properties was high at 73% in the first quarter of 2012. The average room rate increased by 3% to Bt3,168 per night in the first quarter of 2012. Thus, MBK’s average revenue per available room (RevPAR) also increased, rising from Bt2,214 per night in the first quarter of 2011 to Bt2,301 per night in the first quarter of 2012.
Apart from the commercial property business, MBK acquired T Leasing Co., Ltd. (TLS), a provider of motorcycle hire-purchase loans, in 2010. TLS’s outstanding motorcycle loans were Bt1,043 million as of March 2012. As a result of the severe flood in late 2011, the quality of MBK’s loan portfolio deteriorated. The ratio of non-performing loans (NPLs) to total loans rose to 6.5% as of March 2012, up from 4.2% as of September 2011. MBK faces a challenge to continue to expand its loan portfolio while maintaining the quality of assets. MBK also offers mortgage loans. As of March 2012, the mortgage loan portfolio was worth Bt2,490 million, with a loan-to-value ratio of 41%.
For the first nine months of fiscal year (FY) 2011/2012 (July 2011-March 2012), MBK’s revenue increased by 2% to Bt5,871 million. The operating profit margin increased from 30.2% in the first nine months of FY2010/2011 to 33.3% in the first nine months of FY2011/2012. The higher operating margin was mainly driven by the improvement in the hotels and rental property businesses. Starting from April 2013, the company will incur higher lease payment for MBK Center. The payment will significantly increase from Bt85 million per year to Bt695 million per year. The company’s profit margin is expected to decline if MBK is unable to pass through this significant cost increase to its tenants. The company plans to increase its rental rates to cope with the rise in its lease payment obligations. The rise in rental rates will improve its profit margin.
MBK’s funds from operations (FFOs) was Bt2,085 million in FY2010/2011 and stood at Bt1,546 million at the end of the first nine months of FY2011/2012. The level of debt declined from Bt9,207 million at the end of June 2011 to Bt7,351 million at the end of March 2012, following the debt repayments. The FFOs to total debt ratio was 22.7% in FY2010/2011 and stood at 21.0% (non-annualized) at the end of the first nine months of FY2011/2012. The total debt to capitalization ratio decreased from 42.1% at the end of June 2011 to 33.6% as of March of 2012. The company’s liquidity position remained satisfactory. As of March 2012, the company had cash on hand of Bt881 million, while its value of investment portfolio was worth Bt5,204 million, said TRIS Rating.
Company Rating: Affirmed at A Issue Ratings: MBK137A: Bt3,000 million senior debentures due 2013 Affirmed at A MBK163A: Bt2,000 million senior debentures due 2016 Affirmed at A MBK188A: Bt300 million senior debentures due 2018 Affirmed at A MBK188B: Bt400 million senior debentures due 2018 Affirmed at A MBK227A: Bt500 million senior debentures due 2022 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.