TRIS Rating has affirmed the company rating of Sena Development PLC (SENA) at “BBB-” with “stable” outlook. The rating reflects the company’s acceptable track record in the middle- to low-income segment of the residential property market, its experienced key executives, an expected growth in its revenue, and an expected decrease in financial leverage after a capital increase. These strengths are partly offset by SENA’s small revenue base compared with other rated property developer and a recent decline in profitability from high selling and administrative expenses (SG&A). The rating is constrained by the cyclical and competitive nature of the property development industry, plus concerns over a slowdown in the domestic economy and a high level of household debt nationwide.
SENA was established by Mr. Theerawat Thanyalakphark in 1993 and listed on the Stock Exchange of Thailand (SET) in 2009. As of October 2015, the Thanyalakphark family continued to be the company’s largest shareholder, owning a 49% stake. SENA mainly focuses on the residential property development business. The company offers condominium units, single detached houses (SDH), twin houses, townhouses, and commercial units to customers. Its products mainly target the middle- to low-income segment, with an average unit price of Bt1.7 million for condominium units and Bt4.8 million for housing units. As of September 2015, SENA had 11 condominium projects and eight housing projects in its portfolio, with total project value of Bt15,000 million. Around 80% of the total project value was condominium projects, while the rest was housing projects. The value of the remaining unsold units (including built and un-built units) was around Bt8,000 million. The total backlog was valued at Bt2,700 million. Condominium units comprised nearly all the backlog. The backlog will be transferred during the remainder of 2015 through 2017. SENA’s presales was around Bt2,400 million per year during 2013-2014. Presales rose to Bt2,606 million in the first nine months of 2015, driven by presales from The Niche Pride Petchaburi project.
SENA’s revenue base is smaller than most rated property developers. Revenue ranged from Bt1,600-Bt2,000 million per annum during 2011-2013 but increased to Bt2,700 million in 2014. Total revenue during the first nine months of 2015 was Bt1,457 million, a 14% year-on-year (y-o-y) drop. Units in the backlog worth Bt450 million will be delivered during the last quarter of 2015. Thus, revenue for the full year of 2015 is expected to be around Bt2,000 million. Under TRIS Rating’s base case scenario, SENA is expected to launch new projects worth Bt3,000-Bt4,000 million each year. As a result, total revenue over the next three years should range between Bt3,500-Bt4,500 million per year.
During 2015, SENA entered several new businesses. In October 2015, the company acquired 99.9995% of the ordinary shares of SENA Solar Energy Co., Ltd. (previously named TT Renewable Energy Co., Ltd.) from related person in order to expand into solar energy. SENA Solar Energy established a joint venture (JV) to operate solar farms with BGrimm Power Co., Ltd. SENA Solar Energy holds a 51% stake in the JV, while the partner holds 49%. The solar farm projects have a total power capacity of 46.5 megawatts (MW) and are scheduled to commercially operate within December 2015. In addition, SENA Solar Energy founded the JV to do the engineering, procurement, and construction (EPC) work of solar rooftop with Eight Solar Co., Ltd. SENA Solar Energy holds a 46% stake in the JV, while the partner holds 54%. The first lot of solar rooftop will be completed by December 2015. SENA Solar Energy also installed the solar panels with total power capacity of 0.75 MW on the rooftop of its warehouses at Sukhumvit 50. This project has started its commercial operation since June 2015. Total investment of SENA Solar Energy in the solar energy business is around Bt1,800 million. Currently, revenue from solar energy business remained a minimal portion of SENA’s total revenue. In October 2015, SENA joined in a JV, Aspiration One Co., Ltd., to develop an office building for rent, located next to the Ratchathewi station of the skytrain. The shareholders in the JV consist of Aira Property Co., Ltd. (60%), SENA (25%), and Sangfah Construction and Engineering Co., Ltd. (15%). The total investment for the project is around Bt2,000 million. Each JV partner will contribute capital in proportion to its ownership stake. The office building is expected to be completed and ready for rent in 2019.
SENA’s operating margin, as measured by operating income before depreciation and amortization as a percentage of sales, was 23%-25% during 2010-2012. The operating margin dropped to 20% in 2013, but rebounded to 23% in 2014. With lower revenue and high SG&A, SENA’s operating margin during the first nine months of 2015 was slashed to 17%. As SENA expands over the next three years, the operating margin is expected to stay above 15% of total revenue.
SENA’s financial leverage has deteriorated since 2013, due mainly to the business expansion. The debt to capitalization ratio rose from 53% as of December 2013 to 56% as of September 2015. The debt to equity ratio ranged from 1.3-1.4 times during 2013 through the first nine months of 2015. In November 2015, SENA raised Bt550 million in new capital. With a larger capital base and the transfers of finished high-rise condominium projects during the next three years, SENA’s debt to capitalization ratio is expected to stay around 55%-60%, while the interest-bearing debt to equity ratio will hold at 1.2-1.5 times.
Due to the higher debt level, SENA’s cash flow protection weakened. The funds from operations (FFO) to total debt ratio declined to 12% (annualized with trailing 12 months) in the first nine months of 2015, from 15%-17% during 2013-2014 and 20% in 2012. The earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio ranged from 3-4 times during 2013 through the first nine months of 2015, down from 8 times in 2012 and 12 times in 2011. However, SENA’s liquidity profile is still acceptable. It had enough sources of liquidity, including cash on hand of around Bt100 million and undrawn unconditional loan facilities of around Bt3,400 million as of September 2015. SENA has debt of around Bt2,400 million due in the next 12 months.
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, without the prior written permission of TRIS Rating Co., Ltd. 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.