TRIS Rating has affirmed the company rating of Univentures PLC (UV) at “BBB”. At the same time, TRIS Rating has removed the “developing” CreditAlert and replaced it with a “stable” outlook. The rating actions follow the completion of UV’s reorganization which came after the completion of its acquisitions of the 50.64% stake in Golden Land Property Development PLC (GOLD) and the remaining 40% stake in Grand Unity Development Co., Ltd. (Grand U). TRIS Rating has removed the “developing” CreditAlert and assigned a “stable” rating outlook for UV. The “stable” outlook reflects the expectation that UV will be able to develop and deliver its condominium and housing projects as planned. After acquiring GOLD, revenues from rental properties are expected to increase to Bt1,200-Bt1,300 million per year, from Bt200 million in 2012. UV’s debt to capitalization ratio is expected to increase during the next two to three years, but should not exceed 55%. Also, TRIS Rating expects UV’s operating margin to improve and stay at around 10%-15% during the next two to three years.
The company rating reflects UV’s larger capital base after it increased the share capital by Bt5,700 million to acquire shares of GOLD and Grand U. The rating also reflects rising rental income from the office buildings and serviced apartments owned by GOLD. However, these strengths are offset by the weakening cash flow protection of UV after the company consolidated the poorer operating performance of GOLD and an expected rise in UV’s level of leverage. Leverage will be increasing during the next two to three years because UV is investing in the initial phases of several projects undertaken by GOLD and Grand U.
The rating continues to reflect the strong support from UV’s major shareholder, Adelfos Co., Ltd. (Adelfos), the cyclical and competitive nature of the property development industry, plus concerns over rising operating costs and the widespread labor shortage among contractors.
UV was founded in 1980 as a zinc oxide producer. The company started to shift its business focus to property development in 2000 by investing in a number of joint ventures with some listed property developers. UV’s controlling shareholder changed after Adelfos purchased 51.6% of the total shares in 2007. As of March 2013, Adelfos held 58.08% of UV. Adelfos is owned by the second generation of the Sirivadhanabhakdi family, which owns and operates a number of property companies under the TCC Group. In late 2012, UV increased its capital to Bt6,975 million from Bt1,240 million. The capital increase enabled UV to raise its stake in Grand U to 100% and to acquire a 50.64% stake in GOLD. UV’s revenues mainly come from the development of properties for sales, income from rental properties, and the production of zinc oxide.
As of June 2013, UV had 12 residential projects. The portfolio comprises eight condominium projects and four housing projects. The condominium projects are owned by Grand U, with average unit price of Bt2.2 million, while the four housing projects are owned by GOLD and carry an average unit price of Bt13.6 million. The value of the remaining unsold units, across all 12 projects, was around Bt3,200 million. UV has a total backlog of around Bt7,900 million. Presales improved in the last two years. Presales in 2012 soared by 70% year-on-year (y-o-y) to Bt3,971 million. Presales during the first half of 2013 continued to be strong at Bt3,246 million, almost reaching the level of presales attained for the full year in 2012.
UV’s total revenue was Bt4,387 million in 2012, a 22% y-o-y growth. Revenue from condominium projects increased to Bt3,112 million in 2012, from Bt2,545 million in 2011. Revenue from the zinc oxide segment was approximately Bt1,000 million per year. Property rental income increased to Bt219 million in 2012, from Bt13 million in 2011. Rental income rose because the office building, Park Ventures, achieved a higher occupancy rate and a higher rental rate in 2012. During the first six months of 2013, total revenue declined to Bt1,564 million, down from Bt1,991 million during the same period last year. However, revenues in 2013 are expected to be higher than last year. UV plans to transfer more condominium units in the second half of 2013, while property rental income combined with revenue from the zinc oxide business is expected to generate income of total around Bt2,000 million per annum. UV’s revenue is expected to increase to Bt8,000-Bt9,000 million in 2014 since seven condominium projects of Grand U will be ready to transfer to customers. In addition, the company expects the new housing projects undertaken by GOLD to make larger revenue contributions.
UV’s profitability improved in 2012. The operating margin, measured as operating income before depreciation and amortization as a percentage of sales, increased to 13.3%, from 10.5% in 2011 and 6.1% in 2010. The net profit margin stood at around 5% in 2012. However, UV is expected to report a loss in 2013 after the company consolidated the poorer operating performance of GOLD. UV’s profitability is expected to improve once GOLD’s housing projects start to generate more income in 2014. UV’s financial leverage improved after the capital injection of around Bt5,700 million in late 2012. As of June 2013, the debt to capitalization ratio stood at 48.44%, down from 55.42% as of December 2011. Financial leverage is expected to be higher in the next two to three years since UV plans to expand its residential property portfolio and invest more in rental properties. However, the debt to capitalization ratio is not expected to exceed 55%.
Cash flow during 2008-2011 was enhanced by advances received from TCC Luxury Hotel and Resorts Co., Ltd. (TCCLH). The advances were used to fund the construction costs of Park Ventures. However, UV’s cash flow protection deteriorated as debt rose. Consequently, the funds from operations (FFO) to total debt ratio weakened to 8.75% in 2012 and 1.42% (annualized with trailing 12 months) in the first six months of 2013, from 15.86% in 2011 and 36.02% in 2010. The FFO to total debt ratio is expected to improve to around 10% as the performance of Grand U and GOLD improve. Grand U is expected to continually launch and transfer finished condominium units to buyers around Bt5,000 million each year, while GOLD is expected to generate more income from its new housing projects.
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