TRIS Rating has affirmed the company and senior unsecured debenture ratings of Ananda Development PLC (ANAN) at “BBB-”. At the same time, TRIS Rating has revised upward the rating outlook of ANAN to “positive” from “stable”. The ratings continue to reflect ANAN’s strong competitive position in the condominium segment with close proximity to electric-train stations and its proven track record in the residential property market. The strengths are partially offset by the company’s high product concentration in condominium segment and expected higher financial leverage. The ratings also take into consideration the cyclical and competitive nature of the property development industry.
The “positive” outlook reflects the expectation that ANAN’s revenue base will be at around Bt10,000-Bt13,000 million per annum over the next three years. Its operating margin is expected to stay at around 15%. ANAN’s ratings could be upgraded, should its financial performance improve as expected while its debt to capitalization ratio (including proportionate debt from JV) is kept less than 66% or equal to the interest-bearing debt to equity ratio at lower than 2 times. On the contrary, the outlook should be revised downward if ANAN’s financial leverage is significantly higher than expected, either from its aggressive expansion or lower operating performance than expected.
ANAN is engaged in development and sale of residential property, mainly condominium projects located near mass transit train stations in Bangkok. The company was established in 1999 by the Ruangkritya family. In 2003, Mr. Chanond Ruangkritya became the company’s largest shareholder. During 2006-2007, ANAN and Pramerica Real Estate Investors (Pramerica), an overseas property fund manager, jointly established Ananda Development One Co., Ltd. (ADO) and Ananda Development Two Co., Ltd. (AD2) to develop housing and condominium projects, respectively. Pramerica invested 95% of the funds for both ventures. ANAN invested 5% and acts as the property developer and manager. ANAN bought out AD2 from Pramerica in 2010 and ADO in 2012. ANAN was listed on the Stock Exchange of Thailand (SET) in December 2012. As of August 2014, Mr. Chanond Ruangkritya was ANAN’s largest shareholder, holding 50.1% of the shares.
ANAN’s business risk is moderate. The business profile takes into consideration the track records and the operating performances of the JVs as if the entities had been wholly-owned by ANAN since their inceptions. This is because ANAN had been highly involved in all key aspects of the projects that the JVs have developed. In addition to ADO and AD2, ANAN and SEA Investment Five Pte. Ltd. (SEAI5) established the JVs to develop condominium projects in prime areas. SEAI5 is a subsidiary of Mitsui Fudosan Group, the largest real estate developer in Japan. ANAN invests 51% of the JVs and acts as a project manager, while SEAI5 invests 49% and mainly provides its construction know-how to the project. The JVs not only provide ANAN more flexibility to expand the project portfolio but also partly mitigate the business risk.
As of December 2014, ANAN had 24 existing projects, with total remaining value of around Bt14,000 million available for sale. The company had a backlog worth Bt10,000 million (excluding backlog under JV projects worth Bt17,000 million) to be transferred to the customers over the next two years. Presales reached a record high of Bt20,361 million in 2013, before decreasing by 15% year-on-year (y-o-y) to Bt17,311 million in 2014. Total revenue during the first nine months of 2014 soared by 98% y-o-y to Bt6,125 million. A number of the condominium and housing units transferred drove the revenue growth. Under TRIS Rating’s base case scenario, ANAN’s total revenue base is expected to stay at around Bt10,000 million per annum over the next three years. Around 70% of revenue will come from condominium projects, while 20% will come from housing projects.
ANAN’s operating margin, as measured by operating income before depreciation and amortization as a percentage of revenue, improved to 16% during 2012 through the first nine months of 2014 as its condominium projects generated more profit margin and the impacts from acquiring AD2 at high fair value decreased. The net profit margin rebounded to 9% in 2013 and 11% in the first nine months of 2014. Going forward, ANAN’s operating margin is expected to stay at around 15% over the next three years.
The debt to capitalization ratio was 59% (including proportionate debt from JV) as of September 2014. Under TRIS Rating’s base case scenario, ANAN’s financial leverage over the next few years is expected to rise from its business expansion plan to pursue the growth momentum. However, the debt to capitalization ratio should not exceed 66%, or interest-bearing debt to equity ratio should be less than 2 times. ANAN’s liquidity profile is acceptable. Its senior unsecured debentures worth Bt2,395 million and Bt4,000 million will mature in 2016 and 2017, respectively. The company plans to refinance its bonds by issuing new senior unsecured debentures. ANAN’s liquidity sources include Bt2,000 million in cash, Bt6,000 million in undrawn credit facilities as of December 2014, and expected funds from operations (FFO) of around Bt1,000-Bt2,000 million on average per year.
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