TRIS Rating has upgraded the company rating of Golden Land Property Development PLC (GOLD) to “BBB+” from “BBB” with “stable” outlook. The upgrade reflects GOLD’s improving operating performance, driven by higher revenue from housing projects, a significant amount of cash received from the set-up of Golden Ventures Leasehold Real Estate Investment Trust (GVREIT), and stronger capital base after the company allocated 685.7 million newly-issued ordinary shares, at the price of Bt7.25 per share, to Frasers Property Holdings (Thailand) Co., Ltd. (FPHT), which is the connected person. As of March 2016, GOLD was held 39.28% by Univentures PLC (UV) and 35.62% by FPHT. The ultimate major shareholder of UV and FPHT is the Sirivadhanabhakdi family.
The rating also reflects GOLD’s growing brand recognition in the residential property market, its recurring income base from rental assets, and the expected support from its ultimate shareholders. However, these strengths are partially offset by GOLD’s aggressive business expansion plan
and the expected rise in its financial leverage. The rating also takes into consideration the cyclical nature of the property development industry and concerns over the relatively high level of household debts nationwide which may impact the demand in the residential property market in the short-to-medium term.
The “stable” outlook reflects the expectation that GOLD’s operating performance will be in line with its projection. 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.
GOLD’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.
GOLD mainly focuses on the middle-income segment of the housing market. Its products include single detached houses (SDH), semi-detached houses (semi-DH), and townhouses, with unit prices ranging from Bt2 million to Bt10 million. GOLD’s residential property project portfolio now extends to the high-end housing segment after it acquired Krungthep Land PLC (KLAND) in late 2014. At the end of June 2016, GOLD had 22 existing projects, with a total value of Bt39,000 million. The value of remaining unsold units (including built and un-built units) across GOLD’s project portfolio was Bt16,000 million. Around 60% of the remaining value was in KLAND projects while the rest belonged to GOLD.
GOLD’s total revenue jumped to Bt4,058 million in 2014 and Bt8,520 million in 2015, from around Bt1,600 million per annum during 2012-2013. Revenue during the first six months of 2016 leaped to Bt5,201 million from Bt3,645 million during the same period of 2015. Residential sales generated revenue of Bt3,072 million in 2014, Bt7,305 million in 2015, and Bt4,697 million in the first six months of 2016. Recurring income from rental properties, office buildings and serviced apartments, amounted to around Bt1,000 million per year during the past three years. Over the next three years, GOLD’s total revenue is expected to range between Bt10,000-Bt14,000 million per annum, as the company plans to launch several new projects in order to pursue its growth strategy.
GOLD’s operating margin, as measured by operating income before depreciation and amortization as a percentage of sales, improved to 16%-17% during 2015 through the first six months of 2016. The net profit margin rebounded to the positive figure at 8% of total revenue during 2014-2015 and 11% in the first half of 2016. Because of a slowdown in the residential property market and high household debt levels, GOLD is challenged to sustain its operating profit margin at around 15% over the next three years.
GOLD’s debt to capitalization ratio improved to 23% as of June 2016 from 59% as of December 2015. GOLD’s current financial leverage was lower than expected since the company increased its capital by Bt4,971 million in January 2016 and subleased an office building, Sathorn Square, to the GVREIT in March 2016. Cash from capital increase and subleasing the office building to the GVREIT helps partly alleviate debt financing. However, with its aggressive business expansion, GOLD’s leverage is expected to rise but the company is expected to keep its total debt to capitalization ratio below 55%.
GOLD’s cash flow protection improved recently. The funds from operations (FFO) to total debt ratio during the first six months of 2016 increased to 20% (annualized with trailing 12 months), compared with 8% in 2015 and 4% in 2014. The earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio was 6 times during the first half of 2016, up from 2-3 times during 2014-2015. Debt due over the next 12 months is comprised a Bt110 million bill of exchange (B/E) and current portion of project loan worth Bt172 million. This will be supported by its cash on hand of Bt890 million, expected FFO of Bt1,200-Bt1,500 million per annum, and undrawn committed credit facility of Bt6,800 million.
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.