TRIS Rating has affirmed the company and senior debenture ratings of MBK PLC (MBK) at “A” with “stable” outlook. The ratings reflect the stable cash flows from MBK’s contract-based retail property business, a close relationship with the Thanachart Group, and a high level of financial flexibility from its sizable investment portfolio. These strengths are partially offset by rising operating costs from new leasehold contract for MBK Center starting from 2013. The “stable” outlook reflects the expectation that MBK will continue to receive reliable cash flow stream from its rental properties. The company is also expected to maintain the quality of its loan portfolio through its stringent loan approval and collection procedures.
MBK was established in 1974. Thanachart Capital PLC (TCAP) and other companies in the Thanachart Group are MBK’s major shareholders, holding a 20% stake in total. MBK is currently engaged in many lines of business: retail property for rent, hotels, golf courses, residential property development, rice, and financial services. MBK owns and operates the MBK Center, a well-known shopping center located on leasehold land close to the Siam Square shopping district in downtown Bangkok. Despite its diverse portfolio of businesses, the company’s performance continues to be reliant on its two core properties, MBK Center and the Pathumwan Princess Hotel. In 2012, the two properties generated approximately 32% of MBK’s revenue and 52% of its cash flow.
To mitigate business concentration risk, MBK has gradually expanded its retail property development business. MBK reopened the Paradise Park shopping mall in 2010 and launched its first community mall on Rama IX road, the Nine Neighborhood Center, in 2011. The company also has a 31% stake in Siam Piwat Co., Ltd., which owns and operates several shopping centers in the Siam Square area. Siam Piwat owns 100% of Siam Center (19,000 square meters; sq.m.) and Siam Discovery Center (23,200 sq.m.) and has a 50% interest in Siam Paragon (191,000 sq.m.). As of March 2013, MBK’s portfolio of retail property and office space totaled 202,091 sq.m. and 56,044 sq.m., respectively.
For the hotel business, the company currently owns and operates six hotels in key tourist provinces of Thailand, with a total of 964 rooms. Due to favorable prospects in the tourism industry, the average occupancy rate (OR) of MBK’s properties was high at 83.8% in the first quarter of 2013. The average room rate increased by 3.3% to Bt3,290 per night in the first quarter of 2013. Thus, MBK’s average revenue per available room (RevPAR) also increased, rising from Bt2,311 per night in the first quarter of 2012 to Bt2,755 per night in the first quarter of 2013.
For the financial service business, MBK acquired T Leasing Co., Ltd. (TLS), a provider of motorcycle hire-purchase loans, in 2010. TLS’s outstanding motorcycle loans were Bt2,063 million as of March 2013. The ratio of non-performing loans (NPLs) to total loans was 5.5% as of March 2013. MBK also offers mortgage loans. As of March 2013, the mortgage loan portfolio was worth Bt3,689 million, with a loan-to-value ratio of 54%. MBK continues to face a challenge to maintain the quality of assets while expanding its loan portfolio.
In 2012, MBK’s total revenue increased by 3.6% year-on-year (y-o-y) to Bt8,097 million. The operating profit margin increased from 30.0% in fiscal year (FY) 2011 (ending June 2011) to 33.2% in 2012. The higher operating margin was mainly driven by improvements in the hotels and rental property businesses. For the first three months of 2013, MBK’s total revenue was Bt2,317 million and operating profit margin was 37.3%. However, since April 2013, the company has incurred higher lease payments for MBK Center. The payments leaped from Bt85 million per year to Bt695 million per year. The company’s profit margin is expected to decline if MBK is unable to pass through this significant cost increase to its tenants. The company plans to increase its rental rates to cope with the rise in its lease payment obligations and to stabilize its profit margin.
MBK’s funds from operations (FFO) increased from Bt2,086 million in FY2011 to Bt2,479 million in 2012 and stood at Bt962 million in the first three months of 2013. The level of debt slightly increased from Bt9,206 million at the end of June 2011 to Bt10,071 million at the end of March 2013. The FFO to total debt ratio improved from 22.7% in FY2011 to 24.8% in 2012 and stood at 9.6% (non-annualized) in the first three months of 2013. The total debt to capitalization ratio improved from 42.1% at the end of June 2011 to 35.5% as of March 2013. The company’s liquidity position remained satisfactory. As of March 2013, the company had cash on hand of Bt4,607 million, while the value of its investment portfolio was Bt6,955 million.
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 2013, 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.