TRIS Rating has assigned a rating of “A-” to the proposed issue of up to Bt1,500 million in senior unsecured debentures of AP (Thailand) PLC (AP). At the same time, TRIS Rating has affirmed the company and current senior unsecured debenture ratings of AP at “A-”. The outlook remains “stable”. The company plans to use the proceeds from the new debentures to repay debentures maturing in July 2015 and to fund its expansion plans. The ratings reflect AP’s proven track record in the residential property development industry, strong business profile, diverse range of products, and high backlog which secures a portion of its future revenues. These strengths are partially offset by the cyclical nature of the property development industry, AP’s moderate use of financial leverage, and the current slowdown in the domestic economy.
The “stable” outlook reflects the expectation that AP will remain competitive in its core market segments and will rebalance its product portfolio as market conditions change and customer needs change. The outlook is also based on the expectation that AP will continue to follow prudent financial policies and keep its debt to capitalization ratio at 50%-55% in the medium term.
The company’s ratings and/or outlook could be revised downward should its financial profile deteriorates significantly from the current level. On the contrary, the ratings could be revised upward if the company can improve its profitability while its debt to capitalization ratio to around 50% on a sustainable basis.
AP was established in 1990 by Mr. Anuphong Assavabhokhin and Mr. Pichet Vipavasuphakorn, who together owned approximately 26% of the company as of March 2015. In 2014, AP’s revenue stood at Bt23.1 billion, ranking it the fourth-largest property developer listed on the Stock Exchange of Thailand (SET), in terms of revenue. AP’s revenue grew at a compound annual growth rate (CAGR) of 15% over the past five years, with average presales of Bt17 billion per year. In the first quarter of 2015, AP generated presales of Bt3,913 million. In addition, the company also had Bt733 million of presales generated from four condominium projects that AP is jointly developing with MEC Thailand Investment Pte. Ltd. (MTI), a subsidiary of Mitsubishi Estate Co., Ltd. (MEC), a Japanese firm. AP held a 51% stake of the joint venture (JV) while MTI held 49%.
AP’s products cover almost all of the key segments in the residential property market where unit prices are exceed Bt1 million. Each product segment has generated strong presales and AP has captured a respectable market share in each of these segments. The company’s track record is particularly strong in the middle- to high-end townhouse and condominium segments. AP offers its products primarily within the Greater Bangkok area.
AP’s financial profile during the past 12 months was in line with TRIS Rating’s expectations. TRIS Rating’s base-case expects AP’s revenue will grow by 5%-10% per annum over the next three years. Revenue will range from Bt19-Bt22 billion per annum. The downside risk on AP’s revenue is limited given the company’s sizable condominium backlog. As of March 2015, the value of the condominium backlog stood at Bt11.6 billion. Its condominium backlog is expected to be recognized as revenue of around Bt6,500 million in 2015, Bt2,970 million in 2016, and Bt1,780 million in 2017.
During 2015-2017, TRIS Rating expects AP’s operating margin (operating income before depreciation and amortization, as a percent of revenue) to hold at 12%-15%. The operating margin will remain under pressure because land costs are rising and AP will also incur higher marketing and administrative expenses to drive its growth. Under TRIS Rating’s base-case, AP’s debt to capitalization ratio (including 51% of the debt from the JV) is expected to stay around 50%-55% over the next three years, or the net debt to equity ratio of around 1-1.2 times.
AP’s liquidity profile is acceptable. Over the next three years, TRIS Rating expects the company’s funds from operations (FFO) will be Bt1.8-Bt2 billion per annum. The FFO to total debt ratio is expected to stay above 10%, while the EBITDA (earnings before interest, tax, depreciation, and amortization) interest coverage ratio is expected to stay above 3 times. At the end of March 2015, AP had Bt752 million in cash on hand plus undrawn long-term credit lines of Bt7,562 million. Over the next 12 months, long-term debts of Bt2,550 million will mature. AP typically matches the maturities of its short-term debts with the cash it expects to receive from transferring finished condominiums to its customers. AP plans to refinance most of the maturing bonds with new bond issues. The maturing bonds are backed up by AP’s undrawn bank credit lines. Working capital for real estate inventories is expected about Bt3 billion per annum during 2015-2017. AP has a policy to pay no more than 50% of net profits as a dividend, or around Bt500-Bt600 million per annum. TRIS Rating views that AP’s current level of funding is sufficient to support its investment plans and dividend payments.
Company Rating: A- Issue Ratings: AP157A: Bt500 million senior unsecured debentures due 2015 A- AP161A: Bt1,000 million senior unsecured debentures due 2016 A- AP169A: Bt1,200 million senior unsecured debentures due 2016 A- AP171A: Bt1,150 million senior unsecured debentures due 2017 A- AP177A: Bt500 million senior unsecured debentures due 2017 A- AP179A: Bt1,000 million senior unsecured debentures due 2017 A- AP181A: Bt1,250 million senior unsecured debentures due 2018 A- AP188A: Bt1,250 million senior unsecured debentures due 2018 A- AP191A: Bt350 million senior unsecured debentures due 2019 A- AP197A: Bt1,000 million senior unsecured debentures due 2019 A- AP201A: Bt1,500 million senior unsecured debentures due 2020 A- Up to Bt1,500 million senior unsecured debentures due within 2019 A- Rating Outlook: Stable
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