TRIS Rating has assigned a rating of “A-” to the proposed issue of up to Bt1,250 million in senior debentures of Asian Property Development PLC (AP). At the same time, TRIS Rating has affirmed the company and current senior debenture ratings of AP at “A-” with “stable” outlook. The company plans to use the proceeds from the new debentures for business expansion. The ratings reflect AP’s proven track record in the residential property development industry, strong business profile, product diversification, and secured revenues from high backlog. The strengths are partially offset by the cyclical nature of the property development industry, pressures from higher construction costs and labor shortage, and moderate financial leverage. The “stable” outlook reflects an expectation that AP will remain competitive in its core business franchise and will consistently be able to rebalance its product portfolio alongside market dynamic. The outlook is also based on the expectation that AP will continue to follow a prudent financial policy and keep its debt to capitalization ratio around 50% in the medium term.
AP was established in 1990 by Mr. Anuphong Assavabhokhin and Mr. Pichet Vipavasuphakorn who together owned approximately 30% of the company as of March 2013. In 2012, AP’s revenue stood at Bt17.2 billion, ranking it the fourth-largest property developer listed on the Stock Exchange of Thailand (SET), in terms of revenue. The company’s average revenue growth during the past five years was 18% per annum. AP had been able to generate presales in a range of Bt16-Bt20 billion per annum since 2009.
AP’s products cover almost all key segments priced over Bt1 million per unit. Each product segment has generated strong presales and captured respectable market sizes and shares. The company’s track record is particularly strong in the middle- to high-end townhouse and condominium segments. Geographic focus of AP’s products is within the Greater Bangkok.
AP’s overall financial profile improved in 2012. Revenue and presales in 2012 grew by 27% and 41% from a year ago, respectively. Operating margin (operating income before depreciation and amortization as a percentage of revenue) dropped slightly in 2012, but was largely offset by a reduction in financial leverage. TRIS Rating expects AP’s revenues in a range of Bt18-Bt20 billion per annum in the medium term. The annual revenue growth rate is expected in high single digits. The downside risk on AP’s revenue generation is limited given the company’s sizable condominium backlog (unit value sold but not yet transferred). At the end of March 2013, AP’s condominium backlog stood at Bt25.9 billion. The condominium backlog helped secure over three-fourths of the company’s expected revenues from condominium transfers during 2013-2014 and slightly over half of the expected condominium revenue in 2015.
AP’s operating margin dropped slightly in 2012 to 17.1%, compared with 19.3% in 2011 due to higher revenue from low-rise segment and higher marketing expenses. In the medium term, TRIS Rating expects AP’s operating margins in a range of 16%-20%. The debt to capitalization ratio at the end of 2012 was 49.5%, improving from 57.2% in 2011. AP sets target for the net debt to equity ratio at 1.0 time. At the end of 2012, the ratio was at 0.92 times. In TRIS Rating’s view, the target of 1.0 time is in line with the company’s credit profile.
TRIS Rating views AP’s liquidity profile as adequate. TRIS Rating expects AP’s funds from operations (FFO) to stay in a range of Bt2-Bt3 billion per annum in the medium term. The expected FFO should be adequate to support AP’s expansion plan and dividend payments. At the end of 2012, about 81% of the company’s total debts were financed with unsecured debentures. Low level of secured project-finance debts allows AP’s issue ratings to equal the company’s issuer rating. AP’s value of debentures maturing during 2013-2016 is amounted to Bt2-Bt3 billion per annum. AP expects to refinance most of the maturing bonds with new bond issues. The maturing bonds will also be backed up by AP’s credit lines from banks. At the end of 2012, AP’s undrawn long-term facilities with banks stood at Bt18.4 billion.
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