TRIS Rating has affirmed the company rating of Rojana Industrial Park PLC (ROJNA) at “BBB+” with “stable” outlook. The rating also takes into consideration ROJNA’s capable management team, reliable income stream from electricity sales, moderate level of geographical diversification, and strong support from its major shareholders and Japanese partner. The volatile nature of the industrial property market, the uncertain recovery in demand in flood-prone areas, and ROJNA’s relatively high leverage balance sheet are rating concerns. The “stable” outlook reflects the expectation that ROJNA will maintain its market position in the industrial property development industry. ROJNA’s capital structure and profitability are expected to improve gradually as its power segment continues to recover. The increasing contribution from the power segment is expected to strengthen cash flow streams to counterbalance the fluctuations of industrial land sales.
ROJNA is one of the leading industrial property developers in Thailand, established in 1988 by the Vinichbutr family and the Sumitomo Group. In addition to selling industrial property and utilities, the company also developed condominium projects in Thailand. In 2012, ROJNA acquired two new industrial estates in eastern Thailand. Currently, the company owns and operates four industrial parks in Ayudhya, Rayong, and Pranchinburi provinces.
The demand for industrial land in Rojana Industrial Park in Ayudhya has not fully recovered since severe flooding inundated much of the province in late 2011. ROJNA sold about 65 rai of land in 2012 and 93 rai in 2013, compared with 400-650 rai per year in Ayudhya sold before the 2011 flood. However, ROJNA sold 175 rai of land in its new industrial estate in Prachinburi and 55 rai in its Rayong industrial estate in 2013. As a result, total land sales reached a moderate level of 323 rai in 2013, despite soft demand in its major estate in Ayudhya. During the first half of 2014, an economic slowdown in Thailand, especially in the automotive industry, and political tension in the beginning of the year kept land sales low. ROJNA sold industrial land of 202 rai in total in the first half of 2014. Land sales in the Prachinburi industrial estate comprised 80% of total land sales in the first half of the year; the remainder came from the Ayudhya industrial estate. As of June 2014, ROJNA had 5,690 rai of land available for sale. Approximately 50% of the remaining salable land was located in Ayudhya, 25% was located in Prachinburi and remaining 25% was in Rayong.
In addition to industrial estates segment, ROJNA holds a 41% stake in Rojana Power Co., Ltd. (Rojana Power), located in Rojana Industrial Park in Ayudhya province. ROJNA’s electricity generating capacity increased to 432 megawatts (MW) in the third quarter of 2013. Of the total, 180 MW are sold to Electricity Generating Authority of Thailand (EGAT) under the Small Power Producer (SPP) scheme while the remaining generating capacity is sold to industrial customers in Rojana Industrial Park in Ayudhya province. The 2011 flood disabled its power plants and the plants were under repair during late 2011 and 2012. Its equipment refurbishments were completed by the end of 2012 and the plants gradually returned to operation during 2013. In 2013, Rojana Power sold 1,453 gigawatt hours (GWh) of power, and sold 1,091 GWh in the first half of 2014. The volume sold in the first half of 2014 comprised 727 GWh sold to EGAT and 364 GWh sold to industrial users. The volume sold to industrial customers in the first half of 2014 was about 70% of pre-flood sales level. However, the decline in the volume sold to industrial customers was offset by an increase in the volume sold to EGAT. The volume sold to EGAT jumped to 364 GWh per quarter during the first half of 2014, compared with 160 GWh per quarter in 2011. ROJNA completed its second 110-MW power plant under SPP scheme and the new plants started commercial operation in the third quarter of 2013. As a result, ROJNA has sold 180 MW to EGAT out of a total capacity of 432 MW under the SPP scheme since mid 2013. In addition, ROJNA has contracted with EGAT to sell 70 MW on a non-firmed basis since the beginning of 2014. Because of the expansion of power business units and the slowdown of land sales, income from the sales of electricity rose to 80% of ROJNA’s total earnings before interest, tax, depreciation and amortization (EBITDA) during the first half of 2014. The remaining 20% was from the sales of industrial land and condominium.
ROJNA’s total revenue improved to Bt9,155 million in 2013, from Bt6,171 million in 2012. Total revenues rose because of sales of condominium units in China, the restart of 267 MW of power production capacity and commercial operation of new 156 MW. Despite the strong revenue base in 2013, profitability declined substantially because the power plants had not reached full optimization and because condominium sales carried a low margin. The company’s average gross margin fell to 8.8% in 2013 from 23.4% in 2012. Earnings before interest, tax, depreciation, and amortization (EBITDA) fell by 41.9% from the 2012 level to Bt774 million in 2013. During 2013, ROJNA sold two property companies in China and recorded a total gain of Bt487 million from the divestments. In addition, ROJNA recorded remaining insurance compensation totaling Bt963 million in 2013. These extra items resulted in a Bt580 million net profit for the year. The power plants continued to shore up total revenues in the first half of 2014. ROJNA’s total revenues were healthy at Bt4,581 million despite land sales of only Bt79 million in the six-month period. The blended gross margin improved to 13.2%, but remained below the normal level of 20%-30%. The gross margin of the power segment was low at 9.9%, compared with normal margins of 15% achieved during 2009 through the first nine months of 2011. The small amount of high margin land sales was another factor behind the drop in the blended gross margin. EBITDA increased significantly to Bt2,600 million in the first half of 2014, from only Bt59 million in the same period of 2013. However, the EBITDA interest coverage ratio remained soft at 1.76 times in the first half of 2014. The cash flow protection remained weak because of the drop in profit margin and rising interest expenses from hefty investments. Total debt jumped from Bt12,244 million in 2011 to Bt19,752 million at the end of June 2014. The total debt to capitalization ratio increased to 66.7% at the end of June 2014 from about 60% during 2009 and 2010. The rise was mainly due to its ongoing heavy capital expenditures to build new power plants and acquisition of new industrial estates in 2012 and 2013.
Looking forward, ROJNA’s financial profile will continue to recover. Investment spending and economic activities are projected to improve gradually after the full function of the new Cabinet following the political change in May. In addition, ROJNA has a huge backlog of land worth about Bt3,000 million, which will be transferred in the next few quarters. All ROJNA’s 24 MW solar projects were on stream in the third quarter of 2014. As a result, ROJNA’s earnings will significantly improve in the second half of 2014. The company announced it would increase paid-up capital by issuing 360 million shares via a right offering to existing shareholders by the end of November 2014. The company can raise as much as Bt2,500 million if all shareholders exercised their rights. The funds will partly be used to increase ROJNA’s stake in TICON Industrial Connection PLC (TICON) from 26% to not more than 49% during the next 12 months. TICON’s shareholders approved ROJNA’s plan to increase its stake to less than 49.9% by waiving a tender offer. On top of this investment, ROJNA plans to spend about Bt1,000 million per year mainly for land acquisition and development in its industrial estates and Bt4,700 million for a 110-MW gas-fired SPP power plant during 2015 and 2016. The expansions in power sector and investment in TICON will generate stable streams of income and further lessen dependence on volatile industrial land sales in the medium term.
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