TRIS Rating has assigned a rating of “A-” to the proposed issue of up to Bt4,000 million in senior unsecured debentures of Quality Houses PLC (QH). At the same time, TRIS Rating has affirmed the company rating and the current senior unsecured debenture ratings of QH at “A-”. The outlook remains “stable”. The company will use the proceeds from the new debenture issue to repay some of its existing loans. QH’s ratings reflect the company’s established track record in the property development industry, strong position in the middle- to high-income segment of the housing market, and the financial flexibility from its investments in marketable securities. The strengths are partially offset by SC’s relatively high level of financial leverage, the cyclical nature of the property development industry, and the current slowdown in the domestic economy.
The “stable” outlook reflects the expectation that QH’s business profile will remain strong in the medium term. The company’s debt to capitalization ratio is expected to stay below 60% for the next three years. QH’s ratings and/or outlook could be revised downward should its financial profile deteriorate dramatically. For example, a prolonged market slump, leading to lower sales, would push the EBITDA (earnings before interest, taxes, depreciation, and amortization) interest coverage ratio below two times and push the debt to capitalization ratio above 60% on a sustainable basis. In contrast, the ratings could be revised upward if the company can maintain its operating performance at the current levels while lowering its debt to capitalization ratio to around 50% on a sustainable basis.
QH was founded in 1983 and is one of the leading property developers in Thailand. As of March 2015, QH’s major shareholders were Land and Houses PLC (LH, owning a 25% stake) and the Government of Singapore Investment Corporation Pte. Ltd. (11%). QH’s business profile is strong. Over the past five years, it has been one of the five largest property developers, based on revenue, listed on the Stock Exchange of Thailand (SET). QH has a strong market position, particularly in the segment of single-detached houses (SDH) priced at over Bt5 million per unit. Over the past few years, the company has also delivered an acceptable performance in the lower-priced housing segment, with the price range between Bt1-Bt3 million per unit. The company’s housing brands are well-known and accepted by buyers.
QH’s financial profile during the past 12 months was in line with TRIS Rating’s base-case scenario. Revenue in the first quarter of 2015 stood at Bt3,936 million, down 3% compared with the same period in 2014. Presales in the first quarter of 2015 stood at Bt6,450 million, up 56% from the same period a year ago. Around 70% of its presales came from low-rise housing projects. The company also launched a large condominium project, the “Q Sukhumvit”, worth Bt8,531 million. Q Sukhumvit was sold 16% of the total project value, contributing around 20% of total presales in the first quarter of 2015. At the end of March 2015, QH’s backlog of condominium units was worth Bt8,108 million. The condominium units in the backlog are expected to be transferred during 2015-2016, producing Bt3,000-Bt3,500 million in revenue each year. QH’s operating margin (operating income before depreciation and amortization as a percentage of revenue) in the first quarter of 2015 was 10%, down from 13% in the same period of 2014. The total debt to capitalization ratio at the end of March 2015 was 59%, increasing from 57% at the end of 2014.
During 2015-2017, TRIS Rating’s base-case scenario expects QH to generate revenues of around Bt20 billion per annum. Revenues from low-rise housing projects should account for 60%-70% of total revenues. The operating margin is expected to remain stable. The total debt to capitalization ratio is expected to stay below 60%, taking into account the company’s plan to launch new real estate development projects worth approximately Bt20 billion per annum.
QH’s liquidity profile remains acceptable. At the end of March 2015, QH’s long-term debts, mostly debentures maturing within the next 12 months, were around Bt3,800 million. Most of the debts are expected to be refinanced with new debentures. QH’s liquidity sources include Bt2,287 million in cash and Bt3,442 million in undrawn long-term credit facilities as at the end of March 2015. Funds from operations (FFO) is expected to hold at around Bt2 billion per annum. The company’s liquidity position is enhanced by its sizeable portfolio of marketable securities. The portfolio carried a fair value of Bt27.8 billion at the end of March 2015.
Company Rating: A- Issue Ratings: QH162A: Bt800 million senior unsecured debentures due 2016 A- QH164A: Bt2,212 million senior unsecured debentures due 2016 A- QH165A: Bt500 million senior unsecured debentures due 2016 A- QH168A: Bt1,400 million senior unsecured debentures due 2016 A- QH16NA: Bt2,000 million senior unsecured debentures due 2016 A- QH174A: Bt2,000 million senior unsecured debentures due 2017 A- QH177A: Bt530 million senior unsecured debentures due 2017 A- QH178A: Bt2,000 million senior unsecured debentures due 2017 A- QH178B: Bt1,970 million senior unsecured debentures due 2017 A- QH182A: Bt4,000 million senior unsecured debentures due 2018 A- QH185A: Bt2,500 million senior unsecured debentures due 2018 A- QH198A: Bt2,000 million senior unsecured debentures due 2019 A- Up to Bt4,000 million senior unsecured debentures due within 2019 A- Rating Outlook: Stable
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