TRIS Rating 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 and current issue ratings of TICON at “A”. The outlook remains “stable”. The ratings reflect the company’s proven record of producing ready-built factories (RBFs) and warehouses for rent, plus the recurring cash flows it receives from rental contracts. However, the uncertainty surrounding an economic recovery, 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.
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 December 2012, the company’s portfolio comprised 95 leased factories and 62 leased warehouses, with leased space totaling 518,948 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, in 2011, the amount of assets sold to the property funds declined to Bt944 million or 47% of total revenue, due to the severe flooding in late 2011.
As of August 2012, TICON’s major shareholders remained Rojana Industrial Park PLC (21.4%), 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 58.0% as of September 2012. This share is far higher than its competitors, such as Hemaraj Land and Development PLC (15.4%), Pinthong Industrial Park Co., Ltd. (12.7%), Amata Corporation PLC (7.7%), and Thai Factory Development PLC and Thai Industrial Fund 1 (6.3%).
In 2012, TICON’s portfolio of RBFs deteriorated. The amount of leased factory space barely increased, particularly in the areas which had been flooded in late 2011. Many tenants have moved out, resulting in a relatively high level of early contract terminations. However, when combining with the factory space in non-flooded areas, TICON’s total leased area in RBFs fell only by 5%. The amount of leased area in its RBFs was 367,940 sq.m. at the end of 2012 down from 387,515 sq.m. at the end of 2011. In contrast, demand for leased warehouse space has grown significantly. TICON sold warehouse space to TLOGIS totaling 55,230 sq.m. in 2011 and 117,664 sq.m. in 2012, TICON’s warehouse portfolio increased by 44%, from 260,582 sq.m. at the end of 2011 to 374,772 sq.m. at the end of 2012, excluding the effect of warehouse space it sold to TLOGIS. TICON’s recent growth has been driven by the growth of the logistics, automotive, and electronics industries. Excluding the effect of assets sold to the property funds, the company’s total leased area grew by 15% in 2012, or a net increase of 94,615 sq.m. in leased area. The strong performance of the rental warehouse segment helped offset a drop in the RBF segment.
For the first nine months of 2012, the company reported total revenue of Bt1,680 million, a 7% decline from the same period in 2011. The drop in total revenue was because TICON sold fewer assets to the property funds in the first part of 2012. Asset sales to funds dropped by 19% y-o-y to Bt762million in the first nine months of 2012, while TICON plans to make the largest portion of its asset sales to the property funds during the last quarter of 2012. However, rental income jumped by 9% y-o-y to Bt768 million during the same period.
The company’s operating margin before depreciation and amortization improved from 49% for the first nine months of 2011 to 52% for the first nine months of 2012. The rise in the operating margin came, even though the company incurred additional renovation costs and additional selling and administration expenses because of the flood. The increase in the operating profit margin was mainly due to a difference in the mix of revenue. In the first nine months of 2012, the main portion of revenue was the space rentals, which generate a higher margin compared with the margin TICON earns when it sells assets to the property funds.
The company’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 Bt12,930 million at the end of September 2012. The major portion of the capital expenditures went toward TICON’s planned expansion, particularly in eastern Thailand, in order to serve rising demand in the region. The total debt to capitalization ratio rose to 68.4% as of September 2012, from 52.5% in 2010. However, the ratio is expected to improve, as TICON sold approximately Bt3,570 million of its assets to the property funds and successfully raised funds via the issuance of Transferable Subscription Rights (TSRs) of approximately Bt965 million in the fourth quarter of 2012.
Company Rating: A Issue Ratings: TICON141A: Bt800 million senior debentures due 2014 A TICON155A: Bt800 million senior debentures due 2015 A TICON158A: Bt700 million senior debentures due 2015 A TICON165A: Bt650 million senior debentures due 2016 A TICON171A: Bt100 million senior debentures due 2017 A TICON177A: Bt500 million senior debentures due 2017 A TICON178A: Bt300 million senior debentures due 2017 A TICON187A: Bt350 million senior debentures due 2018 A TICON229A: Bt1,000 million senior debentures due 2022 A Up to Bt500 million senior debentures due within 2016 A Rating Outlook: Stable
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