TRIS Rating has assigned a rating of “A-” to the proposed issue of up to Bt1,000 million in senior unsecured debentures of AP (Thailand) PLC (AP). At the same time, TRIS Rating has affirmed the company and existing 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 January 2016. The ratings reflect AP’s proven track record in the residential property development industry, strong business profile, diverse range of products, and moderate 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, concerns over the relatively high household debt level, and the 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 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 deteriorate 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 declines to 40%-45% 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’s shares as of May 2015. AP’s revenue in 2014 stood at Bt23.1 billion and Bt16.1 billion in the first nine months of 2015, 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 nine months of 2015, AP generated presales of Bt11,967 million. In addition, the company also had Bt10,343 million of presales generated from six condominium projects that AP is jointly developing with subsidiary of Mitsubishi Estate Co., Ltd. (MEC), a Japanese firm. AP held a 51% stake of the joint venture (JV) while MEC’s subsidiary held 49%.
AP’s products cover almost all of the key segments in the residential property market. 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 in the first nine months of 2015 was slightly better than 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 Bt20-Bt23 billion per annum, supported by its sizable condominium backlog and increasing number of low-rise housing projects. As of September 2015, the value of the condominium backlog stood at Bt8 billion (excluding backlog under JV projects worth Bt18.4 billion). Its condominium backlog is expected to be recognized as revenue of around Bt1,800 million in 2015, Bt3,400 million in 2016, and Bt2,800 million in 2017.
During 2015-2018, TRIS Rating expects AP’s operating margin (operating income before depreciation and amortization, as a percent of revenue) to hold at 12%-15%. 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 Bt2-Bt2.5 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 4 times. At the end of September 2015, AP had Bt528 million in cash on hand plus undrawn long-term credit lines of Bt11,635 million. Over the next 12 months, long-term debts of Bt3,083 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. AP plans to spend approximately Bt6-Bt7 billion for raw land purchases per annum over the next three years, excluding land purchases for its JV projects. AP has a policy to pay no more than 50% of net profits as a dividend, or around Bt800-Bt900 million per annum. TRIS Rating views that AP’s current level of funding is sufficient to support its investment plans and dividend payments.
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 2016, 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.