TRIS Rating has affirmed the company rating of Noble Development PLC (NOBLE) at “BBB” and has affirmed the ratings of NOBLE’s senior unsecured debentures at “BBB-” with “stable” outlook. The ratings reflect the company’s brand name, which has been well accepted in the middle- to high-end segment of the residential property market, and its product differentiation strategy. The ratings are constrained by NOBLE’s business concentration risk from its huge investment in the Noble Ploenchit condominium project with project value of Bt17,000 million and its relatively high financial leverage. The ratings are also constrained by the cyclical and competitive nature of the property development industry, concerns over rising operating costs, and the widespread labor shortage among contractors. The “stable” outlook reflects the expectation that NOBLE will launch and deliver its projects as planned. NOBLE’s financial leverage is expected to rise and it may breach a bond covenant during 2015-2016. TRIS Rating expects the company to manage its financial leverage appropriately either by getting the covenant relaxation or improving its capital structure to comply with the covenant. However, the ratings or outlook could be downgraded if the company cannot manage its capital structure to comply with its financial covenant and/or the company has a weaker financial profile than expectation.
NOBLE is a medium-sized property developer in Thailand. The company was established in 1991 and listed on the Stock Exchange of Thailand (SET) in 1996. NOBLE’s offers unique designs for every one of its product types. The unique designs differentiate its products from other developers’ projects. The company has focused on developing condominium projects since 2006, as customer preferences have shifted to an urban living style. At the end of September 2014, NOBLE had 17 projects available for sale. The value of the unsold units in its projects were worth approximately Bt12,000 million. The company had a backlog worth around Bt18,000 million. The completed units in the backlog, which will be transferred to customers during the remainder of 2014 through 2015, are worth Bt94 million. The rest of the units in the backlog will be transferred after 2015. As of September 2014, the company’s residential project portfolio comprises condominiums (86% of total project value), single detached houses (SDHs, 7%), townhouses (5%), and plots of raw land (2%).
NOBLE’s presales in the first nine months of 2014 was Bt4,477 million, slightly decreasing from presales of Bt4,743 million in the first nine months of 2013. Total revenue in 2013 grew by 21% year-on-year (y-o-y) to Bt3,085 million, since most of the units in the “Noble Reform” and “Noble Re D” projects were finished and transferred to buyers. Revenue in the first nine months of 2014 was Bt2,171 million, almost the same level as the previous year. Over 95% of NOBLE’s units available for sale, valued at around Bt11,000 million, will be completed and ready to transfer to customers after 2015. The company plans to launch a new low-rise housing project, “GABLE”, valued at Bt2,000 million, by the end of 2014. This project will be the main revenue contributor in 2015. NOBLE’s revenue in 2015 is expected to be lower than Bt1,000 million since most of the units in its backlog will be completed and transferred in 2016 onwards. However, NOBLE’s cashflow remains acceptable, as it keeps receiving customer down payments.
NOBLE’s gross profit margin has remained high and stable, ranging from 38%-39% during 2008 through the first nine months of 2014. The operating margin, measured by operating income before depreciation and amortization as a percentage of sales, ranged from 18% to 21% during 2011 through the first nine months of 2014. Total debt increased to Bt10,059 million as of September 2014, from Bt9,796 million in 2013 and Bt7,806 million in 2012. The ratio of total debt to capitalization was high at around 70% as of September 2014, up from 66% in 2012. The net interest-bearing debt to equity ratio was 1.96 times, a level close to the value specified in NOBLE’s bond covenants. According to its financial covenants, the net interest-bearing debt-to-equity ratio must stay below 2.2 times. NOBLE’s financial leverage is expected to rise in 2014-2016, as it is building several new condominium projects. As a result, the net interest-bearing debt to equity ratio may exceed 2.2 times. The company plans to negotiate with its bondholders to relax this financial covenant during 2015-2016. NOBLE has had relatively good presales and a large backlog. As a result, NOBLE is expected to receive a relaxation from the bondholders for this covenant.
As NOBLE’s financial leverage increased, its funds from operations (FFO) to total debt ratio dropped to 3.97% in the end of 2013 and 4.45% (annualized, from the trailing 12 months), compared with 5.4% in the end of 2012. However, NOBLE’s liquidity is still acceptable. It has enough source of liquidity, including Bt1,500 million in cash on hand, Bt4,600 million in undrawn project loans, and it receives around Bt1,200 million per annum in cash from customer down payments. NOBLE has around Bt2,000 million in debt due in the next 12 months.
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