TRIS Rating has assigned the rating of “BBB-” to the proposed issue of up to Bt1,500 million in senior unsecured debentures of Nawarat Patanakarn PLC (NWR). At the same time, TRIS Rating has affirmed the company rating of NWR at “BBB-”. The outlook remains “stable”. NWR plans to use the proceeds from the new debentures to repay debts and for business expansion. The ratings reflect the company’s acceptable track records in undertaking both public and private construction projects and moderate backlog size. The strengths are partially offset by the cyclical nature of the engineering and construction (E&C) industry, moderate fluctuation in operating performance, and execution risks from property development projects. The “stable” outlook reflects the expectation that NWR’s will continue to maintain its competitiveness in civil works, both public and private projects. The debt to capitalization ratio is expected to stay below 55%, or the interest-bearing debt to equity ratio below 1.2 times during 2014-2016.
NWR was founded in 1976 and listed on the Stock Exchange of Thailand (SET) in 1995. As of March 2014, NWR’s major shareholder was Mr. Polpat Karnasuta, holding about 10% of the total shares. NWR is a general contractor, focusing on civil works for buildings, transportation infrastructure, ports, irrigation works, tunneling, and pipe jacking projects.
NWR’s moderate business risk profile reflects acceptable track record in project executions and completions. During 2009 through the first quarter of 2014, revenue from private projects comprised 60% of total revenues; while public projects comprised 40%. During 2009-2011, NWR’s average revenue was Bt3,900 million per annum. While during 2012-2013, revenue increased to around Bt6,700 million per annum. Revenue in the first quarter of 2014 increased 11% year-on-year (y-o-y) to Bt1,821 million due to higher revenue from civil works in power plant projects. NWR’s average gross profit margin was 8%.
NWR’s backlog for the past five years has ranged from Bt13,000 to Bt15,000 million per annum, a jump from Bt7,800 million in 2008 after the procurement of the coal excavation project at Mae Moh mine, valued at Bt8,878 million in 2009. At the end of March 2014, NWR’s backlog stood at Bt15,304 million. The value of NWR’s top three backlog projects was Bt9,263 million, accounting for 61% of the total backlog. The current backlog should secure revenue in a range of Bt2,900-Bt4,800 million per annum during 2014-2016, accounting for 50% of TRIS Rating’s base-case revenue.
NWR’s ratings reflect the company’s short record in developing residential property projects. NWR invested 40% in a joint venture with Charn Issara Development PLC (CI) to develop “The Issara Ladprao” condominium project, worth Bt1,867 million in 2006 and the "ISSI Condominium Suksawat", worth Bt2,000 million in 2013. In addition, NWR invested 25% in a joint venture with VSPN Property Co., Ltd. to develop “Seabreeze Villa Pattaya” project, worth Bt500 million in 2007. During 2012-2015, the company plans to develop and construct at least three single-detached houses (SDH) projects, under “Baranee” brand. The combined value of three projects are around Bt2,200 million.
NWR’s average operating margin (operating profit before depreciation and amortization as a percentage of revenue) was around 6%-8% during 2009-2013, which was in line with SET-listed peers with similar business size. NWR’s debt to capitalization ratio was around 51%-58% during 2009-2012, but decreased to 44% after the company received Bt1,160 million from the right offering in 2013.
NWR’s financial profile during 2013 through the first quarter of 2014 was in line with TRIS Rating’s expectation. TRIS Rating’s base-case expects NWR’s total revenues to stay in a range of Bt7,000-Bt8,000 million per annum during 2014-2016. The revenue contribution from the property development is expected at least Bt400 million per annum. Downside risk on revenue is moderate as the company’s backlog has secured about half of TRIS Rating’s base-case revenues. The operating margin is expected to improve gradually from 6%-8% to stay above 8% during 2014-2016 due to higher gross profit margin from property development projects. NWR’s debt to capitalization is expected to stay in a range of 45%-55% during 2014-2016. Funds from operations (FFO) are expected to be around Bt500-Bt600 million per annum. The FFO to total debt ratio is expected to stay higher than 18%, while the EBITDA (earnings before interest, taxes, depreciation, and amortization) interest coverage ratio is expected to stay at least above 4.5 times.
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