TRIS Rating has assigned the rating of “BBB+” to the proposed issue of up to Bt3,000 million in senior unsecured debentures of SC Asset Corporation PLC (SC). At the same time, TRIS Rating has affirmed the company rating of SC at “BBB+/stable” and has upgraded the existing senior unsecured debenture ratings of SC to “BBB+/stable” from “BBB/stable”. SC plans to use the proceeds from the new debenture issue to repay maturing debts and for business expansion. The upgraded ratings for the senior unsecured debentures reflect the improving recovery of its unsecured debts after its secured debts to the total assets ratio dropped to below 20%, the threshold level. The ratings continue to reflect SC’s acceptable track record in the middle- to high-end segments of the residential property market, the reliable cash flow streams from the rental property segment, and steadily growing revenues. These strengths are partially offset by higher financial leverage and a declining operating profit margin. The ratings also take into consideration the cyclical and competitive nature of the property development industry.
The “stable” outlook reflects the expectation that SC will be able to maintain its competitive position and financial profile in the medium term. The operating margin is expected to be around 15% over the next three years. Its funds from operations (FFO) to total debt ratio should not be lower than 10%. In addition, the debt to capitalization ratio is expected to stay in a range of 50%-60%. The company’s ratings and/or outlook could be lowered if its profitability deteriorates further or if the total debt to capitalization ratio rises above 60% over a sustained period. The ratings/outlook could be revised upward should the FFO to total debt ratio improve to around 15% and the total debt to capitalization ratio stay at around 50% on a sustainable basis.
SC was established in 1989. After being taken over by the Shinawatra family in 1995, the company entered the rental property business by developing Shinawatra Tower 3. In 2003, SC reorganized to focus on developing residential property. The company was listed on the Stock Exchange of Thailand (SET) in 2003. The Shinawatra family has continued to be the company’s major shareholders, with a 60% stake as of May 2015. SC offers a number of residential property products, including single detached houses (SDH), townhouses, home offices, and condominiums.
SC’s existing residential property products target middle- to high-income customers, with an average price of Bt7.6 million per unit at the end of March 2015. As of March 2015, SC had 34 projects available for sale. The value of the remaining unsold units in the 34 projects was around Bt27.1 billion. The company’s backlog was worth around Bt9.6 billion. The units in the backlog will be delivered to customers during 2015-2017. During 2014 through the first quarter of 2015, sales of housing units comprised the major source of revenue at 55% of total revenue. Condominiums accounted for around 38% of revenue, and income from rental property comprised around 7%.
SC’s presales in 2014 was Bt8,542 million, dropped by 37% from 2013. The drop in presales was due to the slowdown in economy and lower new projects launched in 2014. Presales in the first quarter of 2015 was Bt2,721 million, a rise of 132% from the same period last year. TRIS Rating expects SC’s presales will stay at around Bt8,000-Bt11,000 million per year during 2015-2017.
SC’s total revenue in 2014 was Bt12,601 million, up 26% from Bt10,031 million in 2013. Revenue from residential property sales increased to Bt11,750 million in 2014, from Bt9,201 million in 2013, while rental income from commercial property held steady at around Bt800 million per year. During the first quarter of 2015, total revenue was Bt2,072 million, up 33% year-on-year (y-o-y). Sales of SDH units continued to drive SC’s revenues higher. TRIS Rating’s base case scenario assumes SC’s total revenue will range from Bt11,000-Bt14,000 million per annum during 2015-2017. SC plans to launch and transfer more condominiums in the next two years.
SC’s profitability has been moderate. Its gross profit margin has remained high, at 36%-37% of sales during 2012 through the first quarter of 2015. However, the operating margin, measured as operating income before depreciation and amortization as a percentage of revenue, decreased to 13.2% in the first quarter of 2015, compared with 16.9% in 2014, and above 20% before 2012. The percentage of rising selling, general, and administrative expenses (SG&A) to revenue was mainly due to the lower revenue base in the first quarter of 2015. However, TRIS Rating expects that SC’s operating margin should not be lower than 15% over the next three years since the company is expected to realize more revenues from the condominium projects launched in prior years.
SC’s leverage has increased continuously over the past few years because condominium projects now comprise a large portion of its project portfolio. As of March 2015, the total debt to capitalization ratio rose to 56.3%, from 54.0% in 2014, since most of SC’s condominium projects were under development. The FFO to total debt ratio in the first quarter of 2015 (annualized with trailing 12 months) was 12.1%, a slightly decrease from 12.8% in 2014. The company finances its investments in land and its construction costs with project loans from banks and with bonds. At the end of March 2015, total debt stood at Bt15,174 million, comprising bank loans (63%) and bonds (37%). Its secured debt to total assets dropped to 15.5% from 26% as of June 2014. Going forward, the company plans to keep its secured debt to total assets ratio below 20%. As of March 2015, SC has debts coming Bt4,948 million in due over the next 12 months. Around 60% of the amount due is loans from financial institutions while 40% is bond redemptions. The company plans to repay its bank loans with the cash it expects to receive from transferring completed units in its backlog to customers. SC plans to refinance most of the maturing bonds with new bonds. The company also had undrawn committed credit facilities of Bt3,658 million and cash on hand of around Bt599 million.
Company Rating: BBB+ Issue Ratings: SC156A: Bt2,000 million senior unsecured debentures due 2015 BBB+ SC16OA: Bt800 million senior unsecured debentures due 2016 BBB+ Up to Bt3,000 million senior unsecured debentures due within 2019 BBB+ Rating Outlook: Stable
TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand Copyright 2015, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating-information/rating-criteria.html.