TRIS Rating Co., Ltd. has affirmed the company and the current senior debenture ratings of TICON Industrial Connection PLC (TICON) at “A”. At the same time, TRIS Rating has assigned a rating of “A” to TICON’s proposed issue of up to Bt1,000 million in senior debentures. 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. However, the European debt crisis which is affecting economic conditions and investment activities worldwide remains the rating concern. 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. Despite currently weak demand for RBFs, total leased area is expected to grow, supported by a strong demand for warehouse space.
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 and started providing warehouse space for rent in 2005. As of June 2012, the company’s portfolio comprised 110 leased factories and 76 leased warehouses, with leased space totaling 584,067 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 the sales of assets 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 the property funds declined to Bt944 million in 2011 due to the severe flooding in late 2011.
TRIS Rating said, as of June 2012, TICON’s major shareholders remained Rojana Industrial Park PLC (Rojana; 21.5%), TICON’s management (7.4%), 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 provides warehouses for rent in seven 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 62.2% as of March 2012. This share is far higher than peer companies, such as Hemaraj Land and Development PLC (13.5%), Pinthong Industrial Park Co., Ltd. (10.7%), Thai Factory Development PLC and Thai Industrial Fund 1 (7.1%), and Amata Corporation PLC (6.5%).
During the first six months of 2012, TICON still saw increasing demand for factory space from new tenants, particularly in the East. However, there was a relatively high level of early contract terminations in the first half of 2012 as many tenants in the flooded area continued to move out. As a result, TICON’s portfolio of RBFs has weakened. In March 2012, TICON sold factory space totaling 35,725 sq.m. to TFUND. Excluding these sales, the leased area in TICON’s RBFs dropped by 12% from 387,515 sq.m. at the end of 2011 to 342,165 sq.m. at the end of June 2012. In contrast, demand for leased warehouse space has grown significantly. TICON’s warehouse portfolio increased by 35% from 205,352 sq.m. at the end of 2011 to 277,627 sq.m. at the end of June 2012. The growth has been driven by the growth of logistics, automotive, and electronic industries. The strong performance of rental warehouse segment helps offset the drop in the RBF segment. Neglecting the effect of assets sold to the property funds, the company’s net increase of total leased area grew by 5% in the first six months of 2012, or a net increase of 26,925 sq.m. in leased area.
Despite a revenue loss of Bt73 million in the first quarter of 2012 as a result of the flooding, TICON’s rental income grew by 5% in the first half of 2012, compared with the same period last year. TICON’s total revenues were Bt1,303 million in the first half of 2012, or up by 116% compared with the same period in 2011. The major portion of revenues came from the sales of assets to TFUND amounted to Bt762 million in the first quarter of 2012. The company’s operating margin before depreciation and amortization dropped from 67% for the first six months of 2011 to 51% for the first six months of this year. A decrease in operating profit margin was mainly due to a difference in revenue mix. In the first half of 2012, the main portion of revenues was from the sales of assets to the property funds which incurred lower margin in comparison to rental margin. In addition, the company recorded a renovation expenses for the flooded properties of Bt52 million as part of cost of rent.
TICON’s leverage increased substantially from Bt6,176 million at the end of 2010 to Bt10,476 million at the end of June 2012. A rise in debt level was due to the hefty capital expenditures to diversify its portfolio to the East to serve rising demand in the region. Total debt to capitalization ratio rose to 63.9% as of June 2012, from 52.5% in 2010. However, the ratio is expected to improve should TICON sell approximately Bt3,500-Bt3,700 million of assets to the property funds and successfully raise funds via the issuance of Transferable Subscription Rights (TSRs) of approximately Bt976 million in the fourth quarter of 2012.
The post-flood recovery in manufacturing activities is driving the economic growth in Thailand. The value of projects, which has applied for the Board of Investment’s (BOI) promotional privileges rose by 98%, compared with the same period of last year, to Bt478.5 billion during the first six months of 2012. The European debt crisis may negatively affect export and new foreign direct investments in Thailand. However, the impact is partly alleviated by the relocation of the manufacturing plants of foreign investors, especially Japanese firms. Thailand remains an attractive location as a manufacturing base for a number of industries, especially automobile industry. Thailand is appealing to foreign investors because of the nation’s international trade promotion policies and good infrastructures, together with its desirable geographic location, especially as the implementation of ASEAN Economic Community (AEC) draws near, 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 TICON177A: Bt500 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.