TRIS Rating has assigned the rating of “BBB” to the proposed issue of up to Bt1,000 million in senior unsecured debentures of Sansiri PLC (SIRI). At the same time, TRIS Rating has affirmed the company rating of SIRI at “BBB+” and has affirmed the ratings of SIRI’s senior unsecured debentures at “BBB”. The outlook remains “stable”. The proceeds from the new debentures will be used to repay debentures maturing in October 2016.
The ratings reflect SIRI’s leading position and proven track record in the residential property development industry, well-recognized condominium and housing brands, and diverse product portfolio. These strengths are partially offset by SIRI’s expected higher financial leverage, which will lower cash flow protection, due to its plan to launch several condominium projects under its own brands and through joint ventures (JVs). The ratings also take into consideration the relatively high level of household debts nationwide, coupled with the current slowdown in the domestic economy, which may impact the demand in the residential property market in the short to medium term.
The “stable” outlook reflects the expectation that SIRI will be able to deliver the units in the backlog as scheduled. The operating profit margin should be maintained at around 10% over the next three years. SIRI is expected to keep its debt to capitalization ratio (including proportionate debt from JVs) below 65%, or the interest-bearing debt to equity ratio at less than 2 times.
SIRI’s ratings and/or outlook could be upgraded should its financial profile improve, as its funds from operations (FFO) to total debt ratio stays above 15% and the debt to capitalization ratio (including proportionate debt from JVs) is kept below 60% on a sustainable basis. On the contrary, the ratings and/or outlook could be revised downward if SIRI’s financial performance is significantly worse than the target levels.
SIRI is one of the leading property developers in Thailand. As of June 2016, the company had 90 residential projects in its portfolio, worth a total of around Bt140,000 million. The portfolio comprised condominium (52% of the total portfolio value), single-detached house (SDH, 42%), and townhouse (6%) projects. The average unit price across the portfolio was Bt4.5 million. As of June 2016, SIRI had a backlog worth Bt13,600 million (excluding backlog under JV projects worth Bt13,500 million) and unsold units (including built and un-built units) worth Bt58,000 million available for sale.
SIRI’s presales dropped by 15% year-on-year (y-o-y) to Bt13,000 during the first half of 2016. Its revenue during the first six months of 2016 decreased by 4% y-o-y to Bt15,706 million. SIRI’s revenues over the next three years are partly secured by units in the backlog worth Bt8,300 million during the remainder of 2016, Bt4,400 million in 2017, and Bt1,000 million in 2018. Under TRIS Rating’s base case scenario, SIRI’s revenue over the next three years is forecast to be Bt30,000-Bt33,000 million per annum. Revenue contribution from residential sales will decrease to around 80% of total revenue, while revenue from business management under JV projects will constitute a greater portion from 2016 onwards.
SIRI’s gross profit margin declined to 29%-30% of total revenue during 2015 through the first six months of 2016 from 33%-34% during 2010-2014 as the company cut the prices in several projects in order to increase sales of its remaining finished units. Selling, general, and administrative (SG&A) expenses improved to 17%-19% of total revenue during 2015 through the first half of 2016 from 20%-24% during 2011-2014. SIRI’s operating profit margin (as measured by operating income before depreciation and amortization as a percentage of sales) was around 12%-14% during 2014 through the first six months of 2016. Going forward, SIRI’s operating profit margin is expected to hold at around 10% over the next three years. TRIS Rating views that SIRI’s operating profit margin will be pressured by intense competition under the sluggish demand in residential property market and a thin profit margin from business management under JV projects.
The debt to capitalization ratio (including proportionate debt from JVs) improved to 57% as of December 2015 and 58% as of June 2016, from 61% as of December 2014. TRIS Rating’s base case scenario assumes SIRI’s financial leverage over the next three years will be higher than the current level from its business expansion through its own and JV projects. However, the debt to capitalization ratio should not exceed 65%, or the interest-bearing debt to equity ratio should stay below 2 times. SIRI’s liquidity profile is acceptable. Its senior unsecured debentures worth Bt1,000 million, Bt2,000 million, and Bt6,000 million will mature in the remainder of 2016, 2017, and 2018, respectively. SIRI’s liquidity sources include Bt2,000 million in cash, Bt38,000 million in undrawn unconditional credit facilities as of June 2016, and expected minimum funds from operations (FFO) of Bt2,500 million per annum.
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