TRIS Rating Co., Ltd. has assigned a rating of “A” to the proposed issue of up to Bt1,000 million in senior debentures of TICON Industrial Connection PLC (TICON). At the same time, TRIS Rating has affirmed the company and current senior debenture ratings of TICON 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 rental contracts. However, the current economic slowdown, which affects investment activity worldwide, remains a 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. The signs of recovery in production activity and the strong growth in demand for warehouse space will support TICON’s growth prospects.
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 or 47% of total revenue, due to the severe flooding in late 2011.
TRIS Rating said, as of June 2012, TICON’s major shareholders remained Rojana Industrial Park PLC (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’s portfolio of RBFs has weakened. The amount of leased factory space grew sluggishly, particularly in the area which had been flooded. Many tenants have moved out, resulting in a relatively high level of early contract terminations. 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 the logistics, automotive, and electronics industries. 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. The strong performance of the rental warehouse segment helped offset the drop in the RBF segment.
For the first half of 2012, TICON’s total revenues were Bt1,303 million, a rise of 116% compared with the same period in 2011. The major portion of revenues came from the sales of assets to TFUND, amounting to Bt762 million in the first quarter of 2012. Rental income grew by 5% compared with the same period last year, despite a loss of Bt73 million in revenue during the first quarter of 2012, as a result of the flooding. 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. The decrease in the operating profit margin was mainly due to a difference in the mix of revenue. In the first half of 2012, the main portion of revenue was the sales of assets to property funds, which cause a lower margin compared with the margin on space rentals. In addition, the company recorded a renovation expenses as the cost of rent for the flooded properties of Bt52 million.
TICON’s leverage increased substantially due to its sizable capital expenditures. TICON’s debt level rose from Bt6,176 million at the end of 2010 to Bt10,476 million at the end of June 2012. The major portion of the capital expenditures went toward TICON’s planned expansion, particularly in the Eastern Thailand, in order to serve rising demand in the region. The 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.
After the drastic flooding last year, there are signs of a recovery in manufacturing activity. For example, the value of projects which were applied for the Board of Investment (BOI) promotional privileges rose to Bt478.5 billion during the first six months of 2012, a jump of 98% compared with the same period of last year. In addition, many foreign investors have relocated their production activities to Thailand, as the country remains an attractive manufacturing base for a number of industries, especially the automotive industry. However, the current economic slowdown worldwide may negatively affect investment activities in Thailand, said TRIS Rating. — End.
Company Rating: Affirmed at A Issue Ratings: TICON141A: Bt800 million senior debentures due 2014 Affirmed at A TICON155A: Bt800 million senior debentures due 2015 Affirmed at A TICON158A: Bt700 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 TICON178A: Bt300 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 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.