TRIS Rating has assigned a rating of “A-” to the proposed issue of up to Bt1,000 million in senior unsecured debentures of AP (Thailand) PLC (AP). At the same time, TRIS Rating has affirmed the company and current senior unsecured debenture ratings of AP at “A-”. The outlook remains “stable”. The company plans to use the proceeds from the new debentures for business expansion. The ratings reflect AP’s proven track record in the residential property development industry, strong business profile, product diversification, and secured revenues from high backlog. The strengths are partially offset by the cyclical nature of the property development industry, pressures from higher construction costs and labor shortage, and AP’s moderate financial leverage. The “stable” outlook reflects an expectation that AP will remain competitive in its core business franchise and will consistently be able to rebalance its product portfolio alongside market dynamic. The outlook is also based on the expectation that AP will continue to follow a prudent financial policy and keep its debt to capitalization ratio at around 50%-55% in the medium term.
AP was established in 1990 by Mr. Anuphong Assavabhokhin and Mr. Pichet Vipavasuphakorn who together owned approximately 30% of the company as of March 2014. In 2013, AP’s revenue stood at Bt19.9 billion, ranking it the fourth-largest property developer listed on the Stock Exchange of Thailand (SET), in terms of revenue. The company’s average revenue growth during the past five years was 16% per annum. AP generated average presales of Bt17 billion per annum for the past five years.
AP’s products cover almost all key segments priced over Bt1 million per unit. Each product segment has generated strong presales and captured respectable market sizes and shares. The company’s track record is particularly strong in the middle- to high-end townhouse and condominium segments. Geographic focus of AP’s products is within the Greater Bangkok area.
AP’s financial profile during 2013 to the first quarter of 2014 was in line with TRIS Rating’s expectation. TRIS Rating’s base-case expects AP’s revenue to grow in a range of 8%-10% per annum over the next three years, or revenues in a range of Bt19-Bt22 billion per annum. The downside risk on AP’s revenue growth is limited given the company’s sizable condominium backlog. As of March 2014, AP’s condominium backlog stood at Bt18 billion. About Bt7-Bt8 billion of the condominium backlog is expected to be recognized as revenue per annum during 2014-2015.
For the next three years, TRIS Rating expects AP’s operating margins (operating income before depreciation and amortization as a % of revenue) to stay around 14%-16%. Downward pressures on operating margins include rising construction and land costs, as well as marketing expenses to drive business growth. AP sets target for the net debt to equity ratio at 1.0 time. At the end of March 2014, the ratio was at 1.1 times. In TRIS Rating’s view, the target ratio of 1.0 time is in line with the company’s credit ratings and should provide adequate headroom to support business expansion appetite. AP’s debt to capitalization ratio is expected to stay around 50%-55% over the next three years.
AP’s liquidity profile is acceptable. For the next three years, TRIS Rating expects AP to generate funds from operations (FFO) in a range of Bt2-Bt2.5 billion per annum. The FFO to total debt ratio is expected to stay above 10% (trailing 12 months), while the EBITDA (earnings before interest, tax, depreciation, and amortization) interest coverage is expected to stay above 3 times. At the end of March 2014, AP’s cash on-hand stood at Bt889 million. The undrawn long-term credit lines were reported at Bt11.4 billion. The long-term debts maturing over the next 12 months were Bt2.8 billion. AP typically matches the maturities of its short-term debts with expected cash received from condominium transfers. Meanwhile, the company expects to refinance most of the maturing bonds with new bond issues. The maturing bonds will also be backed up by AP’s credit lines from banks. Working capital for real estate inventories is expected at Bt4-Bt5.5 billion per annum for the next three years. AP’s dividend policy is to pay no more than 50% of net profits, or around Bt700-Bt800 million per annum. TRIS Rating views that AP’s funding needs to support investments and dividends should not add an upward pressure on the company’s debt to capitalization ratio above 60%, or debt to equity ratio over 1.5 times.
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