TRIS Rating has affirmed the company rating of Prinsiri PLC (PRIN) at “BBB-”. At the same time, TRIS Rating has revised PRIN’s outlook to “negative” from “stable”. The “negative” outlook reflects PRIN’s rising business risk profile and its weaker-than-expected financial profile. The rating continues to reflect its acceptable track record in the low-rise segment of the residential property development and its evolving brand recognition in the condominium segment. The rating also takes into consideration PRIN’s relatively small revenue base, the cyclical and competitive nature of the property development industry, plus concerns over rising operating costs and the widespread labour shortage among contractors. The “negative” outlook reflects the fact that PRIN’s financial profile is weaker than expected, plus concerns over the mismanagement of its sales and construction during the past few years. The rating could be downgraded if the company does not improve its operations and its financial performance, especially liquidity. On the other hand, the outlook could be revised back to “stable” should the operating income before depreciation and amortization (as a percentage of sales) rise above 10% and the total debt to capitalization ratio stay around 50%-55% on a sustained basis.
PRIN was established in 2000 by the Kovitchindachai family and listed on the Stock Exchange of Thailand (SET) in 2005. The Kovitchindachai family continues to be the largest shareholder, with a combined 38% stake at the end of June 2014. PRIN offers a wide range of products, including single detached houses (SDH), townhouses, and condominiums. Its residential property projects focus on the middle-income segment in Greater Bangkok. As of June 2014, PRIN had 23 active projects. The remaining unsold units in all of its active projects were valued around Bt8,000 million. Most (73%) of the remaining projects value was in the SDH segment, while 21% was in the townhouse segment, and 6% was in the condominium segment. PRIN has a backlog worth Bt1,105 million, mostly in townhouse projects.
PRIN’s revenue in the past three years ranged from Bt2,000 million-Bt3,000 million, declining from Bt4,000-Bt5,000 million during 2008-2010. The step down was mainly due to poorer presales and construction delays in its projects. PRIN has also suffered from sales and construction management problem in several of it projects during the past few years. PRIN’s operating performance declined as a result. Total revenue in the first half of 2014 was Bt1,042 million, almost the same as the previous year. However, revenue from the sale of townhouse units, the company’s main product, declined to Bt300 million in the first half of 2014 from Bt700 million in the first half of 2013. Townhouse revenue typically amounts to Bt1,000-Bt1,500 million per year.
PRIN’s operating income before depreciation and amortization (as percentage of sales) slid from 15.88% in 2012 to 11.56% in 2013 and 6.70% in the first half of 2014. The actual result is below the 10% level in TRIS Rating forecast. The operating margin fell because PRIN could recognize less revenue than its forecast while selling, general and administrative (SG&A) expenses remained high. PRIN’s financial leverage has increased. As of June 2014, PRIN’s debt to capitalization ratio was 58.25%, increasing from 44.82% in 2012. This ratio was higher than TRIS Rating’s expectation. PRIN’s interest-bearing debt to equity ratio was 1.4 times. According to its financial covenant, the company has to keep the interest baring debt to equity ratio below 2 times. The poor operating performance and higher debt level lowered PRIN’s cash flow protection ratio in the first half of 2014. As a result, the funds from operations (FFO) to total debt ratio dropped to 3.21% (annualized, with the trailing 12 months) at the end of June 2014, down from 11.89% in 2012 and 4.84% in 2013.
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