TRIS Rating has affirmed the company and current senior debenture ratings of Quality Houses PLC (QH) at “A-”. At the same time, TRIS Rating has assigned a rating of “A-” to QH’s proposed issue of up to Bt3,000 million in senior debentures. The company will use the proceeds from the new debentures to repay debts and for business expansion.
TRIS Rating has revised QH’s outlook to “stable” from “negative”. The outlook revision reflects the company’s improving financial profile and lower concern on the recovery of sales in the flood-impacted projects as QH’s product platform diversity has become stronger.
QH’s ratings reflect the company’s established track record in the property development industry, strong position in the middle- to high-income housing market, and financial flexibility from investments in marketable securities. The strengths are partially offset by the cyclical nature of the property development industry, pressures from construction costs and labor shortage, and a high financial leverage in the medium term.
The outlook revision to “stable” reflects QH’s improving financial profile and lower concern on the recovery of sales in the flood-impacted projects as QH’s product platform diversity has become stronger. The outlook also reflects an expectation that the company’s business profile will remain strong in the medium term, with debt to capitalization ratio reducing gradually to stay at around 55%.
QH was founded in 1983 and is one of the leading property developers in Thailand. As of April 2013, QH’s major shareholders were Land and Houses PLC (LH, 25%) and the Government of Singapore Investment Corporation Pte. Ltd. (11%). The company’s revenue in 2012 stood at Bt13.1 billion, ranked sixth among the property developers listed on the Stock Exchange of Thailand (SET-listed). QH has a strong market position, particularly in single-detached house (SDH) segment pricing over Bt5 million per unit. Over the past few years, the company has also delivered an acceptable performance in the lower-priced segments, between Bt1-Bt3 million per unit. The company’s housing brands are highly recognized and well accepted by buyers.
QH’s financial profile in 2012 improved satisfactorily, driven by growth in the segment with unit price of Bt1-Bt3 million and higher condominium transfers. Presales and revenue in 2012 grew by 35% and 33% from 2011, respectively. Operating margin (operating income before depreciation and amortization as a percentage of revenue) rose to 12.5% in 2012, compared with 7.8% in 2011. The debt to capitalization ratio as of year-end 2012 also reduced to 59.1% from 63.0% in 2011. Lower leverage is partly due to the net cash receive of Bt2 billion in 2012 from the set up of a property fund.
Nonetheless, sales from the flood-impacted projects remained slow, especially in the upper-income segment. QH’s flood-impacted projects accounted for 20% of the company’s total real estate inventory at the end of 2012, down from 28% in 2011. TRIS Rating expects that it should take a few years before the sales could resume back to normal. However, QH’s stronger sales in lower-priced and condominium segments should be reasonably sufficient for the company to maintain its financial profile to be consistent with the current ratings in the medium term.
For the next three years, TRIS Rating expects QH to generate baseline revenues in a range of Bt16-Bt19 billion per annum. Revenues from low-rise projects should be around Bt10 billion per annum, while the rest will be from condominium projects. At the end of 2012, QH’s condominium backlog was Bt7 billion. About Bt4.6 billion of the backlog is expected to be transferred in 2013, while most of the remaining units will be transferred in 2014. QH’s operating margin is expected to remain quite stable in the medium term. The debt to capitalization ratio is expected to stay around 55%, taking into account the company’s plan to launch projects worth approximately Bt20 billion per annum.
QH’s liquidity profile remains acceptable. As of year-end 2012, QH’s debts maturing within the next 12 months were Bt7.4 billion. Most of the debts are expected to be refinanced with short-term debts and debentures. QH’s liquidity sources include Bt7.5 billion in undrawn facilities as of year-end 2012 and expected funds from operations (FFO) of Bt1.5-Bt1.9 billion per annum. Furthermore, the company’s liquidity was enhanced by a portfolio of marketable securities with a fair value of Bt24.6 billion at the end of 2012.
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