TRIS Rating has assigned a rating of “A” to the proposed issue of up to Bt2,000 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” with “stable” outlook. 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. Despite an uncertainty in global economic recovery, a recovery in production activity in Thailand should lead to increasing demand for new factory and warehouse spaces.
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 March 2013, the company’s portfolio comprised 106 leased factories and 70 leased warehouses, with leased space totaling 565,308 square meters (sq.m.). The facilities are located in major industrial estates in Thailand. From 2007 to 2012, approximately 27% of TICON’s total revenue was generated by factories and warehouses for rent, while the major portion of revenue (67%) 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 2007 and 2010. However, due to the severe flooding in late 2011, TICON shifted partial of its asset sales to property funds from 2011 to 2012. As a result, the value of assets sold to property funds in 2011 declined to Bt944 million and increased to Bt4,333 million in 2012.
As of March 2013, TICON’s major shareholders remained Rojana Industrial Park PLC (21.2%), TICON’s management (6.0%), and City Realty Group (6.5%). 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 7 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 57.7% as of December 2012. This share is far higher than its competitors, such as Hemaraj Land and Development PLC (16.5%), Pinthong Industrial Park Co., Ltd. (12.3%), Amata Corporation PLC (7.5%), and Thai Factory Development PLC and Thai Industrial Fund 1 (6.1%).
In 2012, TICON’s portfolio of RBFs slightly deteriorated. The amount of leased factory space faced sluggish growth, particularly in the areas which had been flooded in late 2011. Without the effect of assets sold to the property funds, TICON’s total leased area in RBFs in 2012 fell by 5%, while TICON’s warehouse portfolio increased by 44% in 2012. The company’s net increase of total leased area grew by 15% in 2012, excluding the effect of assets sold to the property funds. The strong performance of the rental warehouse segment helped offset a drop in the RBFs segment.
For the first three months of 2013, TICON’s total leased area increased by 8.9%, rising from 518,948 sq.m. at the end of 2012 to 565,308 sq.m. at the end of March 2013. The growth was driven by a 10.8% increase in the amount of leased space in the RBFs portfolio and a 7.0% increase in the warehouse portfolio.
In 2012, TICON posted total revenue of Bt5,558 million, a 178% year-on-year rise from Bt1,999 million in total revenue in 2011. Rental income jumped by 20% from the 2011 level, but the sizable growth in total revenue was largely due to asset sales to the property funds. Revenue from asset sales to the property funds in 2012 increased more than four times from Bt944 million in 2011 to Bt4,333 million in 2012 due mainly to a shift in asset sales to the property funds from 2011 to 2012 due to the floods in late 2011 and a strong growth in warehouse portfolio.
The company’s operating profit before depreciation and amortization increased from Bt972 million in 2011 to Bt2,326 million in 2012. However, TICON’s operating profit margin before depreciation and amortization decreased from 48.6% in 2011 to 41.9% in 2012. The operating profit margin declined mainly due to a difference in the revenue mix. TICON sold more assets to the property funds in 2012. Asset sales to the property funds grew to 78% of total revenue in 2012, compared with 47% in 2011. Revenue from rental space generates higher margins compared with the margins from selling assets to the funds. Revenue from rental space decreased to 19% of total revenue in 2012 from 44% in 2011.
During 2011-2012, TICON’s capital expenditures increased substantial to expand its RBFs and warehouse portfolio in the eastern part of Thailand in order to serve rising demand in the region. Its debt level rose from Bt6,176 million at the end of 2010 to Bt10,600 million at the end of 2012. However, the company’s total debt to capitalization ratio slightly improved from 60.4% at the end of 2011 to 57.3% at the end of 2012, following the success of selling assets to the property funds and the Transferable Subscription Rights (TSRs) issuance in the second half of 2012.
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