TRIS Rating has affirmed the company rating of Rojana Industrial Park PLC (ROJNA) at “BBB+” with “stable” outlook. The rating reflects ROJNA’s long track record in industrial property in Thailand, the reliable stream of income it receives from electricity sales, and the strong support from its major shareholders and Japanese partner. The rating also takes into consideration more geographical diversification and the recurring cash flows from the rental industrial properties. The volatile nature of the industrial property market, the global economic slowdown, and ROJNA’s relatively high leverage are rating concerns.
The “stable” outlook reflects the expectation that ROJNA will maintain its market position in the industrial property development industry. The contribution from the power segment and recurring income from rental properties is expected to strengthen cash flow streams to counterbalance the fluctuations in industrial land sales. The rating upside will arise if the company makes significant, sustained improvements in its balance sheet and debt serviceability. In contrast, the rating and/or outlook could be revised downward if the company undertakes any sizeable debt-financed investments which further weaken its balance sheet and cash flow protection.
ROJNA is one of the leading industrial property developers in Thailand, established in 1988 by the Vinichbutr family and the Sumitomo Group. In addition to selling industrial property and providing utility services, the company owns and operates 432 megawatt (MW) gas-fired power plants, and owns a 24-MW solar farm located in Rojana Industrial Park in Ayudhya province. From 2012 to 2014, ROJNA expanded its industrial estate portfolio to eastern Thailand. The company owns and operates four industrial parks in Ayudhya, Rayong, and Pranchinburi provinces and is developing two more industrial estates in Chonburi province. In 2014, ROJNA increased its equity stake in TICON Industrial Connection PLC (TICON) from 20.6% to 43.5% with additional investment cost of Bt5,302 million. ROJNA began to consolidate TICON’s financial statements onto its own financial statements in January 2015. For the first six months of 2015, the power segment generated 63% of ROJNA’s total revenues. Recurring income from rental properties and utility sales contributed 10% and remaining 27% came from industrial land sales and property sales.
The sales of industrial land at its main location, Ayudhya, have remained slow. However, land sales in new estate in Prachinburi have partly alleviated the impact. During 2013 and 2014, more than 50% of industrial land sales came from the Prachinburi estate. Land sales rose to 720 rai in 2014 from 323 rai in 2013 because of a large plot sale to one key customer in Prachinburi estate. During the first six months of 2015, the current economic slowdown, especially in the automotive industry, kept land sales low. ROJNA sold 92 rai of land in the first nine months of 2015. As of June 2015, ROJNA had 7,771 rai of land available for sale. About 40% of the remaining salable land was located in Ayudhya, 25% was in Chonburi, 20% was located in Prachinburi, and the remainder was in Rayong.
In addition to industrial estate business, ROJNA also holds a 41% stake in Rojana Power Co., Ltd. (Rojana Power), located in Rojana Industrial Park in Ayudhya province. ROJNA’s power plants resumed operation in 2013 after the repairs and equipment refurbishments were completed. As a result, ROJNA’s power sales continued to rise. ROJNA sold 2,222 gigawatt hours (GWh) of power in 2014, an increase of 52.9% over 2013. In the first nine months of 2015, the volume of electricity sold rose by 13.1% over the same period of the prior year to 1,234 GWh. The volume increase was because the company contracted to sell an additional 70 MW to Provincial Electricity Authority (PEA) on a non-firm basis, on top of the 180 MW ROJNA sells to the Electricity Generating Authority of Thailand (EGAT) under the terms of Power Purchase Agreement (PPA) in the Small Power Producer (SPP) scheme. The volume of electricity sold to industrial customers also rose in the first half of 2015, climbing by about 10.9% over the same period of the prior year. The volume sold to industrial customers recovered to about 85% of the level of sales before the 2011 flood crisis.
ROJNA’s total revenue improved to Bt11,597 million in 2014, from Bt9,155 million in 2013. Revenues rose because ROJNA started commercial operation of 156 MW of new power generating capacity and because it sold 2,404 rai of industrial land in 2014. The operating margin before depreciation and amortization increased to 21.4% due to more mix of revenues from land sales, which generated higher margin. Earnings before interest, tax, depreciation, and amortization (EBITDA) rose to Bt2,630 million in 2014 from Bt774 million in 2013.
Earnings continued to grow in the first half of 2015. ROJNA’s revenues grew by 63.2% over the same period of the prior year to Bt7,479 million. Revenues shot up because ROJNA sold large land plot and the company has higher sales from the power plants and solar farm. Consolidating with TICON’s results also helped shore up total revenues in the first half of 2015. TICON’s revenues accounted for about 7% of ROJNA’s total revenues in the first half of 2015. Profitability also rose in the first half of 2015 due to higher margin in most segments. Land sales posted a spectacular margin of 59%, partly due to the exceptionally high margin earned on the sale of land for residential property project. The gross margin of the gas-fired power plants improved to 12.2%, better than the margin of 10.8% recorded in the same period of 2014. Including the high-margin ROJNA earned from its rental income from TICON’s operation, ROJNA’s overall gross margin rose to 30.5% in the first half of 2015. The operating margin before depreciation and amortization rose to 30.8% in the first half of 2015, compared with 17.1% in the same period of 2014. EBITDA jumped to Bt2,608 million, compared with Bt833 million during the same period of the prior year. Recurring income accounted for about 60% of total EBITDA in the first six months of 2015, comprising 40% from selling power and 20% from rental income of TICON.
Despite increasing EBITDA, ROJNA’s interest coverage ratio remained moderate at 2.8 times in the first half of 2015, compared with 2.7 times in 2014. Fund from operation (FFO) to total debt ratio slightly lowered to 7.3% (annualized with trailing 12 months) in the first half of 2015, compared with 8.8% in 2014. Cash flow protection remained modest because leverage rose. Total debt jumped from Bt17,683 million in 2013 to Bt43,908 million at the end of June 2015. ROJNA continued its heavy capital expenditures to make geographic diversification and to increase recurring income stream. ROJNA expanded new industrial estates in eastern Thailand, added 156 MW of new power generating capacity, and increased its holding in TICON which develops rental properties. ROJNA had to record additional debt of Bt20,649 million once it consolidated TICON’s balance sheet onto its own books. Even though ROJNA successfully raised funds via capital increase totaling Bt2,181 million in 2014 and the first half of 2015, the debt to capitalization ratio further rose to 66.3% as of June 2015 from 64.3% in 2013. Looking forward, leverage is expected to remain high due to ongoing expansion plans. ROJNA plans to spend Bt8,000 million in capital during 2015-2017. The capital expenditures included funds for a 110-MW gas-fired power plant under an SPP scheme, land and development cost for new industrial estates, and funds for expansion of water plant. TICON will spend Bt6,000-Bt7,000 million per year to develop new rentable factory space and warehouse space. Despite the hefty capital expenditures, ROJNA’s liquidity and cash flow protection are expected to be manageable. ROJNA’s EBITDA is forecasted at Bt4,000 million per year, excluding the funds TICON receives from selling rental properties to the real estate investment trusts (REITs). TICON normally sells industrial properties worth approximately Bt4,000 million per year.
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