TRIS Rating has assigned the company rating of Pre-Built PLC (PREB) at “BBB-” with “stable” outlook. The rating reflects the company’s acceptable track record in high-rise building construction projects, strong backlog size, and its relatively good profit margin. These strengths are partially offset by the cyclicality of the engineering and construction (E&C) industry, high concentration risk in the end-markets served, short track record in property development business, and a potential rise in financial leverage. The “stable” outlook reflects the expectation that PREB will continue to maintain its competitiveness in its core business. Leverage is expected to rise but it should be under control despite PREB’s plan to develop more condominium projects over the next three years. The debt to capitalization ratio is not expected to be higher than 50%, or the interest-bearing debt to equity ratio will be no higher than one time.
PREB was founded in 1995 and listed on the Stock Exchange of Thailand (SET) in 2005. As of May 2014, PREB’s major shareholder was the Charoentra family, holding 26% of shares outstanding. The company is a general contractor focusing on high-rise buildings in the private sector. PREB’s annual revenue averaged Bt2,585 million during 2008 through 2012. In 2013, total revenue increased to Bt6,007 million. Revenue from the construction segment accounted for 80%-90% of total revenues during the past five years. The revenue contributions from the sale of construction materials and property development remain small, but have gradually increased over the past few years. Since 2010, the company has completed four condominium projects.
PREB’s moderate business profile reflects its acceptable track record in undertaking residential and commercial high-rise building projects. Most of the company’s clients are property developers listed on the SET. These customers have acceptable credit profiles. From 2011 to the first three months of 2014, PREB’s biggest client has been Quality Houses PLC (QH), contributing 20%-30% of total revenue in a year. As of March 2014, PREB’s backlog stood at Bt17.7 billion. The current backlog is about three times the revenue that PREB earned from the construction segment in 2013.
PREB’s financial profile is acceptable. During the past three years, the company’s gross profit margin was around 12%. PREB’s gross margin was partially enhanced from the high gross profit margin of the property development segment. The gross profit margin in the construction segment was around 7%, while the gross profit margin in the property development segment averaged 44%. PREB’s operating margin (operating profit before depreciation and amortization as a percentage of revenue) had been steady at 5%-7%. PREB’s debt to capitalization ratio averaged at 27.26% during 2010-2011, but has decreased to around 9% since 2012. The debt level fell because PREB transferred most of its completed condominium projects to its customers.
During 2014-2016, TRIS Rating’s base-case expects PREB’s revenue from the construction segment to be Bt5-Bt6 billion per year. The revenue contribution from the property development segment is expected to rise in 2015-2016 due to the completion and transfer of the “Grand Sathorn Wuttakard” project. TRIS Rating’s base-case expects PREB’s operating margin to stay around 4% for the next three years. Funds from operations (FFO) are expected to range from Bt140 million to Bt300 million per annum. As of March 2014, the debt to capitalization ratio was only 10.88%. The expansion into the property development segment is expected to raise PREB’s financial leverage. However, the debt to capitalization ratio is expected to stay below 50% over the next three years. Cash flow protections, as measured by the FFO to total debt ratio and the EBITDA (earnings before interest, taxes, depreciation, and amortization) interest coverage ratio, is expected to be weaker due to the rise in leverage. During 2014-2016, the FFO to total debt ratio is expected to stay above 20%, while the EBITDA interest coverage is expected to be above four times.
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