TRIS Rating has assigned the rating of “BBB” to the proposed issue of up to Bt2,000 million in senior debentures of Sansiri PLC (SIRI). At the same time, TRIS Rating has affirmed the company rating of SIRI at “BBB+” and has affirmed its existing senior debenture ratings at “BBB”. The outlook remains “positive”. The Bt1,000 million proceeds from the proposed debentures will be used to repay the debentures due in September 2013, and the rest will be funded for business expansion. The “positive” outlook reflects SIRI’s improving operating performance in terms of sales and profit during 2010-2012. The ratings could be upgraded should the company lower its interest-bearing debt to equity ratio to less than 1.5 times on a sustainable basis. On the contrary, a sharply weaker financial position could cause its ratings or outlook to be revised downward.
The ratings continue to reflect SIRI’s leading position and proven record in the residential property development industry, well-recognized condominium and housing brands, diverse product portfolio, and strong backlog which partly secures the company’s future revenue stream. These strengths are partially offset by rising financial leverage in the past three years and relatively high selling and administrative (SG&A) expenses. The ratings also take into consideration the cyclical and competitive nature of the property development industry, plus concerns over rising operating costs and the widespread labor shortage among contractors.
SIRI is one of the leading property developers in Thailand. As of March 2013, the company had 99 residential projects in its portfolio, worth a total of around Bt127,000 million. The portfolio consists of condominium (61% of the total portfolio value), single-detached house (SDH, 31%), and townhouse (8%) projects. The average unit price across the portfolio was Bt3.5 million. At the end of March 2013, SIRI had a huge backlog worth Bt56,000 million or nearly two times its revenue in 2012. The value of the unsold units in its existing residential projects was approximately Bt40,000 million. SIRI’s main competitive edge is derived from its well-accepted brand name, well-executed marketing strategies, and the good quality of its products, especially in the condominium segment.
Presales reached a record high of Bt42,593 million in 2012, doubled the Bt21,792 million booked in 2011. During the first quarter of 2013, presales totaled Bt20,900 million, around half of a full-year level of presales in 2012. Presales grew because SIRI launched a large number of condominium projects in 2012 and in the first three months of 2013. The new project launches received good responses from customers. Condominium presales peaked at Bt28,553 million in 2012, and was still high at Bt17,836 million in the first quarter of 2013. Presales of SDH projects have been Bt2,400-Bt2,900 million per quarter during the latest five quarters. However, presales of townhouse units were lower than in the past. Townhouse presales dropped by 14% year-on-year (y-o-y) to Bt3,614 million in 2012, and declined to Bt515 million during the first three months of 2013 from Bt1,195 million during the same period of 2012. The high level of condominium presales pushed SIRI’s backlog significantly higher.
Total revenue of SIRI climbed to Bt29,821 million in 2012, up by 45% from Bt20,542 million in 2011. SIRI’s revenues ranked no. 1 among the property development operators in 2012, reflecting its dominant position in both condominium and housing segments. Revenue rose across all product types. Revenue from condominiums soared by 60% y-o-y to Bt14,913 million in 2012, making the company’s record. Revenue in the SDH and townhouse segments grew by 32% and 37%, respectively, compared with the levels in 2011. During the first quarter of 2013, total revenue was Bt5,111 million, nearly the same level as Bt5,109 million during the same period of 2012. Income from condominium and SDH increased by 17% y-o-y and 10% y-o-y, respectively, whereas townhouse declined by 53% y-o-y. SIRI’s gross profit margin had been 32%-34% of total revenue during 2010 through the first three months of 2013, up from 28%-29% during 2006-2009. SIRI’s operating profit margin declined to only 2% of total revenue in the first quarter of 2013, shrinking from 14%-16% during 2009-2012. A sharp drop was due mainly to rising SG&A expenses, resulting from a number of new projects, especially condominium, launched in the first quarter. SIRI’s financial leverage remained relatively high. During 2010 through the first three months of 2013, its debt to capitalization ratio stayed at 62%-64%. The interest-bearing debt to equity ratio had been 1.6-1.8 times during 2010 through the first quarter of 2013, rising from around 1-1.3 times during 2007-2009. SIRI’s liquidity weakened in the first three months of 2013 as the ratio of funds from operations (FFO) to total debt declined to 10.56% (annualized with trailing 12 months) from 14.1% in 2012 and the earnings before interest, tax, depreciation, and amortization (EBITDA) interest coverage ratio was only 0.83 times. However, SIRI plans to deliver a huge backlog of Bt19,000 million during the remainder of 2013. This should enhance its liquidity and lower its financial leverage.
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