TRIS Rating has upgraded the company rating and the ratings of senior unsecured debentures of Ananda Development PLC (ANAN) to “BBB” from “BBB-”. At the same time, TRIS Rating has also upgraded the rating of ANAN’s unsecured subordinated perpetual debentures (hybrid debentures) to “BB+” from “BB”. The outlook has been also revised to “stable” from “positive”.
The upgrades reflect ANAN’s improved operational profile in terms of larger revenue base, more contribution from the low-rise housing segment, and the expected higher contribution of share profits from its investment in joint venture (JV) projects. The ratings continue to reflect ANAN’s strong market competitiveness in the condominium segment and its proven track record in the residential property market. However, the company’s high concentration on the condominium segment and its high level of financial leverage remain the key concerns. The ratings also take into consideration the relatively high level of household debts nationwide coupled with the slowdown in the domestic economy which may impact the demand in the housing market in the short-to-medium term.
The “stable” outlook reflects the expectation that ANAN will be able to sustain its operating performance at the target levels. Over the next three years, ANAN’s revenue is expected to be in the range of Bt10,000-Bt13,000 million per annum. The company is expected to keep FFO at Bt1,200-Bt1,500 million per year while maintaining debt to capitalization ratio (including the adjustments with proportionate debt from JVs and the subordinated capital debentures) at no more than 66%, or the interest-bearing debt to equity ratio below 2 times.
ANAN’s ratings and/or outlook could be revised downward should its operating performance and/or financial profile significantly deteriorate from the target levels. Also, the debt to capitalization ratio at above 66% for certain periods will lead to the downward revision. The rating upgrades are unlikely in the near term. However, if the company’s operating performance improved significantly from the current level while its adjusted debt to capitalization ratio could be kept lower than 60% on a sustainable basis, these factors would be positive for ANAN’s ratings.
ANAN is engaged in development and sale of residential property, mainly condominium projects located near mass transit train stations in Bangkok. The company was established in 1999 by the Ruangkritya family, and then listed on the Stock Exchange of Thailand (SET) in December 2012. As of August 2015, Mr. Chanond Ruangkritya was ANAN’s largest shareholder, holding 50.1% of the shares.
ANAN’s business risk profile is improving. The operating performances of the company and its JVs have been relatively strong over the past few years. Revenue from its own projects improved from around Bt5,000 million per year during 2011-2012 to around Bt10,000 million per year during 2013-2015, while its JVs with SEA Investment Five Pte. Ltd. (SEAI5), a subsidiary of Mitsui Fudosan Group, (51:49) to develop condominium projects will start to realize profits in 2016 and onwards. As of December 2015, combined project values under JVs were around Bt43,000 million. The JVs not only enhance ANAN’s capacity to expand the project portfolio but also help mitigate the business and financial risks of ANAN.
As of December 2015, ANAN had 31 existing projects, consisting of 20 condominium projects and 11 low-rise housing projects, with total remaining values of around Bt29,000 million available for sale. ANAN is developing eight condominium projects under its JV with SEAI5. The company had a backlog worth Bt37,000 million (of which Bt27,000 million was in JV projects). The units in the backlog will be transferred to customers over the next three years.
ANAN’s presales in 2015 increased by 13% year-on-year (y-o-y) to Bt19,611 million. Presales in condominium and housing grew by 8% y-o-y and 64% y-o-y, respectively. Total revenue in 2014 was Bt10,328 million, a 13% y-o-y growth. Revenue during the first nine months of 2015 declined by 12% y-o-y to Bt5,396 million. ANAN is expected to record revenue of around Bt5,000 million in the last quarter of 2015, mainly supported by backlog from condominium projects. As a result, revenue for the entire 2015 will reach Bt10,000 million. Over the next three years, ANAN’s total revenue is expected to range from Bt10,000-Bt13,000 million per annum. Additionally, income from project management services and commission fees through the JV projects will contribute a greater portion of total revenue from 2016 onwards.
ANAN’s operating margin, as measured by operating income before depreciation and amortization as a percentage of revenue, improved to 16% during 2012-2013 and 19% in 2014 as its condominium projects generated more profit margins. The operating margin dropped to 14% during the first nine months of 2015 because less revenue was recognized during the period. Going forward, ANAN’s operating margin is expected to stay at around 15% over the next three years. The net profit margin during the next three years is expected to improve as ANAN will start recognizing share profits from its JV projects from mid-2016.
The debt to capitalization ratio (including the adjustments with proportionate debt from JVs and the subordinated capital debentures) was 55% as of December 2014 and 63% as of September 2015. TRIS Rating’s base case scenario assumes ANAN’s financial leverage over the next three years will remain high from its business expansion through its own and JV projects. However, the debt to capitalization ratio should not exceed 66%, or the interest-bearing debt to equity ratio should be less than 2 times. ANAN’s liquidity profile is acceptable. Its senior unsecured debentures worth Bt2,395 million, Bt4,000 million, and Bt2,000 million will mature in 2016, 2017, and 2018, respectively. ANAN’s liquidity sources include around Bt2,000 million in cash, Bt4,700 million in undrawn unconditional credit facilities as of December 2015, and expected funds from operations (FFO) of around Bt1,200-Bt1,500 million per annum.
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