TRIS Rating has assigned the company rating of Charn Issara Development PLC (CI) at “BBB-” with “stable” outlook. The rating reflects the company’s acceptable track record in middle- to high-end condominium segment and the recurring income it receives from the hotel and office rental businesses. These strengths are partly offset by the company’s relatively small revenue base, fluctuating operating performance, and relatively high leverage. The rating also takes into consideration the cyclical and competitive nature of the property development industry, plus concerns over rising project development costs and the labor shortage problem. The “stable” outlook reflects the expectation that CI will be able to sustain its financial position in the medium term. The company is expected to deliver the units in its backlog on schedule. Because it has several condominium projects under construction at the same time, CI has to carefully manage cash inflows and cash outflows in order to reduce its exposure to liquidity risk. Also, its debt to capitalization ratio should not stay above 65%.
CI is a small-sized property developer in Thailand. The company was established in 1989 and listed on the Stock Exchange of Thailand (SET) in 2002. The Issara family has been the company’s major shareholder since its inception. As of July 2013, the family held a 46.62% stake. CI offers various types of residential property projects including condominiums, residential villas, single detached houses (SDHs), and townhouses. Its products mainly target the middle- to high-end segments. Most of its residential projects are located in Cha-am, Petchburi province. The rest are in Bangkok, Phuket, and Nakornratchasrima provinces. However, the company has a small number of projects, with eight existing projects as of June 2013. The remaining value of the unsold units in these projects was approximately Bt4,000 million. Nearly 80% of the remaining unsold value were in condominium projects, with the rest in residential villa, SDH, and townhouse projects. CI now has a backlog worth Bt3,685 million, with 85% of the backlog scheduled to be transferred during 2014-2015.
Apart from its residential property projects, CI started developing a luxury boutique hotel named Sripanwa in Phuket, in 2006. With its premium quality, the project receives well responses from customers. In addition, the hotel helps increase the value of the residential villas for sale inside the Sripanwa project. The Sripanwa hotel has generated progressively more income for the company every year since 2006. Revenue from the hotel was Bt304 million in 2012 and Bt197 million in the first six months of 2013. CI also earns a recurring rental and service income of Bt80-Bt90 million per annum from Charn Issara Tower I and II.
Due to the inconsistency launch of new projects, CI’s operating performance has been volatile. Presales declined to Bt660 million in 2008 and Bt367 million in 2009, down from Bt1,943 million in 2007, since no new project was launched during 2008 and 2009. Presales improved to Bt714 million in 2010 and Bt899 million in 2011, supported by the presales of “The Issara Ladprao” condominium project. Presales reached a record high of Bt2,475 million in 2012. The growth was mainly driven by the presales of condominium units in the “Baan Thew Talay” Phase 1-2 and The Issara Ladprao projects. Presales during the first half of 2013 was Bt1,626 million, a 17% year-on-year (y-o-y) growth. The “ISSI @ Suksawad” project generated a presales of Bt1,106 million in the first six months of 2013.
CI’s revenue and profitability were rather fluctuating. Total revenue was around Bt1,000 million per annum during 2008-2011, before leaping to Bt2,068 million in 2012. Revenue doubled because a large number of condominium units in The Issara Ladprao were transferred to customers. Revenue in the first six months of 2013 declined by 45% y-o-y to Bt584 million due mainly to fewer residential units transferred. CI’s operating profit margin was 18%-19% in 2008 and 2009, but declined to 9% in 2010 and 11% in 2011. The operating profit margin recovered to 18% in 2012, before dropping to 3% in the first half of 2013.
CI has a high level of leverage. The debt to capitalization ratio ranged from 55% to 64% during 2008-2011. The ratio improved to 53% in 2012, after the company delivered the finished units in The Issara Ladprao project to customers. As of June 2013, the debt to capitalization ratio was 56%. CI’s financial leverage is expected to remain high for the next few years, as it plans to launch several new condominium projects. However, CI’s need for more debt financing is expected to relax after the company sold some parts of the Sripanwa hotel to the Sri Panwa Hotel Property Fund (SPWPF) in August 2013. CI’s gain on asset sales was around Bt800 million.
Due to the relatively low operating profit margin and rising debt level, CI’s cash flow protection, the funds from operations (FFO) to total debt; dropped to -0.02% in 2010 and 3.01% in 2011, down from 7% in 2009 and 11% in 2008. Its cash flow protection improved to 15% in 2012 after the transfer of The Issara Ladprao. Due to deteriorated operating performance in the first half of 2013, the ratio was 3.91% (annualized with trailing 12 months).
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