TRIS Rating has upgraded the company rating of Univentures PLC (UV) to “BBB+” from “BBB” with “stable” outlook. The upgrade reflects UV’s improving financial profile driven by strong growth in low-rise residential property sales of its subsidiary, Golden Land Property Development PLC (GOLD), and a significant amount of cash received from the set-up of Golden Ventures Leasehold Real Estate Investment Trust (GVREIT). In addition, the capital injection of Bt4,971 million into GOLD by Frasers Property Holdings (Thailand) Co., Ltd. (FPHT), which is the connected person of UV, also helped improve capital structure of the Group. The ultimate major shareholder of UV and FPHT is the connected person of both companies.
The rating continues to reflect UV’s more diversified product portfolio to middle- and high-end housing products after it acquired GOLD in late 2012 and Krungthep Land PLC (KLAND) in late 2014, the stable stream of income of its rental assets, and the expected support from its ultimate major shareholder. However, these strengths are partially offset by the slowdown in its condominium sales and the expected rise in its financial leverage based on the aggressive business expansion through residential projects and rental assets of the Group. The rating also takes 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 UV will be able to sustain its operating performance at the target levels. Over the next three years, UV’s revenue is expected to be in the range of Bt15,000-Bt18,000 million per annum. The company is expected to keep its operating profit margin at around 15% over the next three years. Debt to capitalization ratio should stay below 55% or the interest-bearing debt to equity ratio below 1 times.
UV’s rating 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 60% for certain periods may lead to a downward rating or outlook revision.
UV was founded in 1980 as a zinc oxide producer. The company shifted its business to property development in 2000 by investing in a number of joint ventures with some listed property developers. Adelfos purchased 51.6% of UV’s shares in 2007 and became its controlling shareholder. As of March 2016, Adelfos held a 66.01% stake in UV. Adelfos is owned by the second generation of the Sirivadhanabhakdi family. The family owns and manages a number of property companies under the TCC Group.
UV’s residential property portfolio used to be dedicated to condominium projects, developed by Grand Unity Development Co., Ltd. (GUD). UV expanded to the middle- and high-end housing segments after the acquisition of GOLD and KLAND. As of June 2016, UV owned 31 residential property projects. Its project portfolio comprises nine condominium projects developed by GUD and 22 housing projects developed by GOLD and KLAND. At the end of June 2016, UV had unsold units (including built and un-built units) worth Bt22,000 million available for sale.
UV’s presales grew by 61% year-on-year (y-o-y) to Bt11,143 million in 2015 and 25% y-o-y to Bt6,518 million in the first six months of 2016. UV’s total revenue in 2015 was Bt13,268 million, a 45% y-o-y rise. Revenue from residential projects sharply increased to Bt10,462 million in 2015 from Bt6,486 million in 2014. Rental assets generated a revenue of Bt1,500 million in 2015. UV’s total revenue in the first half of 2016 improved by 25% y-o-y to Bt7,610 million. Residential sales soared to Bt6,340 million during the first six months of 2016, as revenue from housing projects rose. At the end of June 2016, UV’s backlog was worth Bt6,200 million. Units in condominium projects comprised 60% of the backlog. The units in the backlog will be delivered to customers during the remainder of 2016 through 2017. Over the next three years, UV’s total revenue is expected to reach Bt15,000-Bt18,000 million per annum, as the company plans to launch several new residential property projects. Revenue from housing projects will comprise at least 60% of the company’s total revenue.
UV’s operating margin, as measured by operating income before depreciation and amortization as a percentage of sales, improved to 14%-15% during 2015 through the first half of 2016 from 11% in 2014. Due to the larger contribution of revenue from single-detached houses (SDH) and townhouses which have higher profit margins, UV’s operating profit margin will be able to maintain at around 15% over the next three years.
UV’s debt to capitalization ratio improved to 29% as of June 2016 from 60% as of December 2015 and 62% as of December 2014. UV’s current financial leverage was lower than in the past as GOLD increased its capital by Bt4,971 million in January 2016 and UV subleased two office buildings, Park Venture Ecoplex and Sathorn Square, to the GVREIT in March 2016. Cash from capital increase and subleasing office buildings to the GVREIT helps partly alleviate debt financing. Despite its aggressive business expansion, UV is expected to keep its total debt to capitalization ratio below 55% in order to remain commensurate with its rating.
UV’s cash flow protection has improved significantly during the last two years. The fund from operation (FFO) to total debt ratio during the first six months of 2016 increased to 14% (annualized with trailing 12 months), compared with 9% in 2015 and 5% in 2014. The earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio was 5 times during the first half of 2016, up from 2-3 times during 2013-2015. Debt due over the next 12 months comprises a Bt1,150 million bill of exchange (B/E) and a current portion of project loan worth Bt1,588 million. This will be supported by its cash on hand of Bt1,071 million, expected FFO of Bt1,200-Bt1,500 million per annum, and undrawn committed credit facility of Bt9,400 million.
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