TRIS Rating has assigned the rating of “BBB” to the proposed issue of up to Bt1,000 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 proceeds from the new debentures will be used to fund business expansion. The “positive” outlook reflects the expected strong operating performance of SIRI in terms of sales and profit over the next two to three years, supporting by its relatively large amount of backlog on hand. 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 the company’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 August 2013, the company had 116 residential projects in its portfolio, worth a total of around Bt145,000 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 August 2013, SIRI had a huge backlog worth Bt60,000 million or around two times its revenue in 2012. The value of the unsold units in its existing residential projects was approximately Bt49,000 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. In the first half of 2013, presales grew by 57% year-on-year (y-o-y) to Bt28,610 million. The growth was mainly driven by condominium presales. Presales of SDH units increased by 3%, while presales of townhouse units sharply dropped. Strong presales of condominium units pushed SIRI’s backlog significantly high.
SIRI’s total revenue was 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. During the first six months of 2013, total revenue was Bt12,682 million, a 20% y-o-y growth. SIRI’s total revenue in the first half of 2013 was lower than TRIS Rating’s expectation. However, SIRI is expected to deliver a backlog worth around Bt15,000 million in the second half of 2013 as planned. Total revenue in 2014, 2015, and 2016 is partly secured by backlog worth Bt20,000 million, Bt15,000 million, and Bt10,000 million, respectively.
SIRI’s financial profile weakened in the first six months of 2013. The operating margin, measured by operating income before depreciation and amortization as a percentage of sales, decreased to 6.5% in the first half of 2013, down from 14%-16% during 2009-2012. SIRI’s profitability is expected to improve to 13%-15% over the next three years once the company is able to deliver the units in backlog to customers as scheduled. SIRI’s financial leverage stayed at 61%-63% during 2010-2012, and increased to 66% as of June 2013. The interest-bearing debt to equity ratio rose to 2 times at the end of June 2013 from 1.6-1.7 times during 2010-2012. The funds from operations (FFO) to total debt was 9.95% (annualized with trailing 12 months) during the first six months of 2013. The ratio is expected to be 12%-14% as SIRI’s profitability improves and the debt to capitalization ratio decreases.
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