TRIS Rating has assigned the rating of “A” to the proposed issue of up to Bt3,000 million in senior unsecured debentures of Pruksa Real Estate PLC (PS). At the same time, TRIS Rating has affirmed the company and existing senior unsecured debenture ratings of PS at “A”. The outlook remains “stable”. The proceeds from the new debentures will be used to repay short-term borrowings and debentures maturing in June 2015.
The ratings reflect PS’s leading position in the middle- to low-priced townhouse segment, its proven track record in the middle- to low-income residential property segment, its cost competitiveness, and its large backlog, which partly secures the company’s future revenue stream. These strengths are partially offset by the cyclical and competitive nature of the property development industry, plus concerns over the slower-than-expected growth in the domestic economy and high household debt levels which may lead to low purchasing power and stagnant demand in residential property development.
The “stable” outlook reflects the expectation that PS will sustain its operating performance over the next three years. The company is expected to deliver a large number of the units in its backlog as scheduled. In addition, PS’s total debt to capitalization ratio should stay below 55%.
PS’s future outlook will be influenced by the trends of the domestic economy as well as the company’s operating performance. PS's credit upside would materialize if there are significant improvements in its operating performance and financial performance. However, the current slowdown in the domestic economy and rising household debt levels remain two challenges for PS.
PS is one of the leading residential property developers in Thailand. The company was established in 1993 by Mr. Thongma Vijitpongpun and was listed on the Stock Exchange of Thailand (SET) in December 2005. As of March 2015, the Vijitpongpun family continued to be the company’s largest shareholder, owning a 69% stake. At the end of March 2015, PS had a huge project portfolio, comprising around 200 residential projects. PS’s residential units mainly focus on the middle- to low-ended segment. However, the company is moving to a higher-priced product to expand the project portfolio and meet customer demand. The value of the remaining unsold units (including built and un-built units) across PS’s project portfolio was around Bt83,000 million. The total backlog was valued at around Bt39,000 million.
PS’s competitive edge is derived from employing the precast and prefabrication technologies and managing the construction processes for townhouse and single-detached house (SDH) projects by itself. With large production volumes, the precast and prefabrication techniques enable the company to control construction costs and shorten the construction period. As a result, PS has been able to offer residential units at competitive prices and increase the turnover of its products.
PS’s presales in 2014 slightly decreased to Bt39,089 million, a 5% year-on-year (y-o-y) drop. Presales from townhouse and SDH increased by 8% y-o-y and 20% y-o-y, respectively, while presales from condominium declined by 34% y-o-y. Presales during the first quarter of 2015 was Bt12,761 million, a significant growth from Bt8,194 million during the same period of 2014. With its plan to launch a number of new projects in 2015, TRIS Rating expects PS will be able to generate stronger presales in 2015.
Total revenue in 2014 was Bt42,781 million, a 10% y-o-y growth. Its revenue in 2014 ranked the first among all the property developers and reached a new record high for the industry. PS’s transferred value during the first three months of 2015 improved by around 4% y-o-y. Its revenue during the remaining of 2015 through 2017 is partly secured by the units in backlog worth Bt24,000 million in 2015, Bt8,400 million in 2016, and Bt3,500 million in 2017.
The operating margin, as measured by operating income before depreciation and amortization as a percentage of sales, was 18%-21% during 2010-2014. Under the sluggish demand in residential property market, TRIS Rating expects PS will be able to maintain the operating margin at least 18% over the next three years. Total debt to capitalization ratio ranged from 47% to 55% during 2010-2013. The ratio improved to 45% in 2014. With continued aggressive project expansion, PS’s financial leverage should be kept lower than 55%. The company’s liquidity remained acceptable as the ratio of funds from operations (FFO) to total debt was 26% in 2013 and 30% in 2014. Also, PS had a sizable undrawn credit facility of around Bt25,000 million as of December 2014, which gives it a sufficient amount of financial flexibility.
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