TRIS Rating Co., Ltd. has affirmed the company rating of SC Asset Corporation PLC (SC) at “BBB+” and has affirmed the rating of SC’s senior debentures at “BBB”. The outlook remains “stable”. The ratings reflect SC’s acceptable track record in the middle- to high-end segments of the residential property market, as well as the reliable cash flow stream from its rental property business. These strengths are partially offset by a rising level of financial leverage and a declining operating profit margin. The ratings also take into consideration the cyclical nature of the property development industry, labor shortages, and rising construction costs. The rating of SC’s senior debentures is one notch below the company rating due to a high level of secured debts compared with total assets. The “stable” outlook reflects the expectation that the company will be able to sustain its financial and business profile in the short to medium term. Profitability ratios will be lower because recurring income from rental property will comprise a declining proportion of revenue. However, the amount of profit is expected to increase due to a larger revenue base from the sale of residential property. In addition, the debt to capitalization ratio is expected to remain at or below the current level. A significant deterioration in profitability and/or a rise in leverage will negatively impact the company’s ratings or outlook.
TRIS Rating reported that SC is a medium-sized property developer which was founded in August 1989. After a takeover by the Shinawatra family in 1995, the company began a rental property business by developing Shinawatra Tower 3. SC reorganized its business in 2003 to focus on residential property. The company was listed on the Stock Exchange of Thailand (SET) in November 2003. The Shinawatra family has continued to be the company’s major shareholder with a 60.31% stake as of May 2012. SC offers a various type of residential property products, including single detached houses (SDHs), townhouses, home offices, and condominiums. The company focuses on developing small- to medium-scale residential projects tailored to meet customer preferences. SC’s existing residential products target middle- to high-income customers, with prices per unit ranging between Bt5-Bt100 million for SDH units, Bt3.5-Bt8 million for townhouses and home offices, and Bt60,000-Bt150,000 per square meter (sq.m.) for condominium units. During 2011 through the first quarter of 2012, sales of SDH units remained the major source of revenue, constituting 74% of total revenue; condominiums and townhouses accounted for around 12%-15% combinedly. Income from rental property comprised around 11%-14% of total revenue.
TRIS Rating said, SC’s presales jumped sharply to Bt8,102 million in 2011, up 62% from Bt5,014 million in 2010. Presales during the first five months of 2012 continued to increase, climbing to Bt3,886 million, much higher than presales of Bt2,875 million during the same period of 2011. The growth in presales was due to a larger number of new projects launched in the second half of 2011 and the better absorption rate of its existing projects. SDH presales in 2011 remained strong, jumping by more than 50% from the 2010 level. However, the impact of the severe flood in late 2011 slashed presales by 33% to Bt1,655 million in the first five months of 2012, compared with the same period of 2011. Nevertheless, the drop in SDH presales was offset by a sharp rise in condominium presales in 2012. Presales of condominium in the first five months of 2012 was Bt1,979 million, much higher than the Bt265 million recorded during the same period of 2011. Moreover, SC plans to launch 10 projects with the total project value of Bt12,000 million in the second half of 2012. As a result, presales for the full year of 2012 is expected to be sound.
SC’s revenue from residential property sales rose to Bt6,526 million in 2011, up 12% from Bt5,823 million in 2010 due mainly to increasing revenue from the sales of SDH units. During the first three months of 2012, residential sales slightly dropped to Bt1,207 million, from Bt1,419 million during the same period of 2011. Sales of SDH units continued to be the growth driver, while revenue from rental property has continued to be a reliable source of income. Revenue from rental property held at about Bt830 million during each of the past three years, 2009 to 2011.
SC’s profitability has been acceptable, supported by the high gross profit margin from rental property. The gross profit margin has remained high, at 38%-40% of sales during 2010 through the first quarter of 2012. However, the operating margin dropped from 24.82% in 2010 to 20.92% in 2011, and tumbled to 16.84% in the first quarter of 2012 due to the expiration of the government tax incentives and more marketing expenditures. Nevertheless, SC’s operating margin is still comparable with peers. A higher debt level from more project expansion during 2011 through the first three months of 2012 deteriorated its cash flow protection. The funds from operations (FFOs) to total debt ratio decreased from 29.13% in 2010 to 12.70% in 2011, and fell to 2.62% (non-annualized) in the first quarter of 2012 from 8.45% (non-annualized) in the same period of 2011. The total debt to capitalization ratio rose to 45.00% as of March 2012 from 31.81% in 2010. However, financial flexibility remained at an acceptable level, supported by undrawn committed credit facilities of Bt2,310 million, said TRIS Rating. — End
Company Rating: Affirmed at BBB+ Issue Ratings: SC156A: Bt2,000 million senior debentures due 2015 Affirmed at BBB 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.