TRIS Rating has assigned the company rating of Sena Development PLC (SENA) at “BBB-” with “stable” outlook. The rating reflects the company’s acceptable track record in the middle- to low-income segment of the residential property market, its experienced key executives, and the expected rise in its revenue. These strengths are partly offset by SENA’s small revenue base compared with other rated property developers, a slide in profitability over the past five years from rising selling and administrative expenses (SG&A), and expected higher financial leverage from its investments in several new projects. The rating continues to reflect the cyclical and competitive nature of the property development sector. The “stable” outlook reflects the expectation that SENA will be able to develop and deliver its active and future projects as scheduled. With its business expansion plan, SENA’s financial leverage is expected to rise, but the debt to capitalization ratio should stay below 60%. In addition, cash flow protection may weaken from the current level but the FFO to total debt ratio should stay around 5%-10%.
SENA was established by Mr. Theerawat Thanyalakphark in 1993 and listed on the Stock Exchange of Thailand (SET) in 2009. As of May 2014, the Thanyalakphark family continued to be the company’s largest shareholder, owning a 53% stake. SENA offers condominium units, single detached houses (SDH), twin houses, townhouses, and commercial units to customers. Its products mainly target the middle- to low-income segment, with a unit price of Bt1.5 million for condominium and Bt4.6 million for housing. As of June 2014, SENA had seven condominium projects and six housing projects in its portfolio, with a total project value of Bt9,500 million. Condominium projects comprised 70% of the value of the portfolio. At the end of June 2014, the value of the remaining unsold units (including built and un-built units) across SENA’s project portfolio was Bt5,300 million.
SENA’s presales ranged from Bt1,600 million to Bt1,800 million per annum during 2009-2012. Presales reached a record high of Bt2,464 million in 2013. SENA launched eight new projects worth Bt6,500 million that year. Each of these eight projects received a moderate response from customers. Presales during the first six months of 2014 amounted to Bt1,243 million, a 10% year-on-year (y-o-y) rise. SENA plans to launch several new projects in order to achieve its growth targets. TRIS Rating expects SENA’s presales will be Bt3,000-Bt4,000 million per year during the next three years.
SENA’s revenue base is smaller than most listed property developers. Revenue was Bt1,200-Bt1,300 million per annum during 2008-2010 and increased to Bt1,600-Bt2,000 million per annum during 2011-2013. Total revenue during the first half of 2014 was Bt1,004 million. As of June 2014, SENA carried a backlog worth Bt2,000 million. Around 75% of the backlog will be delivered in the second half of 2014. As a result, revenue for the full year in 2014 will be Bt2,500 million. In TRIS Rating’s base case scenario, SENA will launch several new projects and transfer the units in its existing and future projects as planned. In each of the next three years, revenue is expected to be Bt3,000-Bt4,000 million per year.
SENA’s operating margin, as measured by operating income before depreciation and amortization as a percentage of sales, was 23%-25% during 2010-2012. The operating margin dropped to 19% in 2013 and in the first six months of 2014 because the company boosted marketing expenses and incurred higher fixed costs from business expansion. Even with the planned number of new projects, SENA’s operating margin is expected to range from 14%-16% over the next three years.
SENA’s financial leverage deteriorated during 2013 through the first half of 2014, due mainly to its project expansion. The debt to capitalization ratio was 53% in 2013 and 55% as of June 2014, up from 44% in 2012 and 28% in 2011. TRIS Rating expects SENA’s financial leverage to rise during the next three years from business expansion, but the debt to capitalization ratio is expected to stay below 60% (or the debt to equity ratio at lower than 1.5 times). As of June 2014, SENA’s interest-bearing debt comprised short-term bills of exchange (B/Es) and promissory notes (P/Ns), totalling Bt2,731 million or around 90% of its total debt. Since most of outstanding debts were short-term B/Es and P/Ns, SENA is exposed to the rollover risk. However, the company still had an undrawn credit facility, without any drawdown conditions, of around Bt1,800 million. The credit facility partly mitigates the rollover risk of the short-term B/Es and P/Ns. SENA is expected to manage liquidity cautiously. SENA’s debt level is rising and its profitability is declining. As a result, cash flow protection, measured by the funds from operations (FFO) to total debt ratio, declined substantially. The FFO to total debt ratio tumbled from around 60% in 2011 to 15% in 2013 and in the first six months of 2014 (annualized with trailing 12 months). Because its debt level is expected to continue rising, SENA’s FFO to total debt ratio is expected to decline, but the ratio should stay in the range of 5%-10%. The earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio should stay above 2 times.
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