TRIS Rating has assigned the company rating of Origin Property PLC (ORI) at “BBB-” with “stable” outlook. The rating reflects ORI’s evolving brand recognition in the middle- to low-priced condominium segment, improved financial profile after listing on the Stock Exchange of Thailand (SET) in 2015, and its relatively high backlog. However, these strengths are partly offset by the company’s limited track record, product segment concentration, and an anticipated rise in financial leverage due to an aggressive expansion. The rating also takes into consideration the cyclical nature of the property development industry, concerns over the relatively high household debt level, and the slowdown in the domestic economy.
The “stable” outlook reflects the expectation that ORI will continue to grow as planned. The operating margin is expected to stay above 15% while the debt to equity ratio should stay below 2 times.
The rating upside is limited in the medium term. However, the rating or outlook could be revised upward if the company continues to significantly grow its revenue or cash flow base while maintaining its profitability and keeping its debt to capitalization ratio lower than 60% on a sustained basis. On the contrary, the rating and/or outlook could be revised downward should ORI’s operating performance and financial leverage deteriorate significantly from the current levels.
ORI was established in 2009 by the Jaroon-ek family. The company was listed on the SET in late 2015. The Jaroon-ek family has been the major shareholder of the company since inception, owning a 69% stake as of March 2016. In 2011, ORI set up Origin One Co., Ltd. to invest in property projects that generate recurring income. ORI focuses on the middle- to low-end condominium segment. The average selling price of a condominium ranges from Bt45,000-Bt95,000 per square metre (sq.m.) or Bt1.5-Bt3.5 million per unit. Most of ORI’s condominium projects are located in the suburbs of Bangkok, especially along the Skytrain route from Bearing to Samut Prakan and the route from Kasetsart University intersection to Saphan Mai. The company recently expanded into Sri Racha and Laem Chabang, both in Chonburi province. ORI’s condominium projects are developed under the “Knightsbridge”, “Notting Hill”, and “Kensington” brands. ORI’s competitive position in condominium segment is improving over time. Revenues and presales have grown steadily since inception.
As of June 2016, ORI had 28 condominium projects with a total project value of Bt21,614 million. The average selling price across the entire portfolio was Bt2.2 million per unit. ORI had Bt17,658 million worth of units available for sale across the project portfolio. Presales was Bt5,130 million in 2015, jumping from Bt2,217 million in 2014 and Bt1,474 million in 2013. Presales in the first half of 2016 was Bt2,342 million, increasing 3% from the same period last year. At the end of June 2016, the value of ORI’s condominium backlog stood at Bt8,196 million and is expected to be recognized as revenue of around Bt2,000 million in the second half of 2016, Bt4,200 million in 2017, and Bt1,900 million in 2018.
ORI’s revenue is considered small compared with its SET-listed peers because it transferred just a few projects each year during 2012-2014. Revenue was Bt2,010 million in 2015, leaping from Bt550 million in 2014 and Bt413 million in 2013. Revenue in the first half of 2016 was Bt991 million, down 7% from the same period a year ago. The operating margin (operating income before depreciation and amortization as a percentage of revenue) during 2012 through the first half of 2016 ranged from 17%-24%.
ORI’s balance sheet is acceptable. The leverage level improved after it raised Bt1,315 million from an initial public offering (IPO) in October 2015. The total debt to capitalization ratio was 28.3% at the end of 2015, down from 78.3% at the end of 2014. However, this ratio was 43.4% at the end of June 2016. Going forwards, leverage is expected to rise since the company plans to launch a number of new projects to sustain business growth momentum. ORI plans to launch new condominium projects worth around Bt10,000 million annually during 2016-2019. Over the next two years, ORI also plans to invest in assets which will generate recurring income, such as hotels and service apartments.
Under TRIS Rating’s base-case, ORI’s revenue is expected to range from Bt3,000-Bt6,000 million during the next two to three years. The operating margin is expected to hold at around 15%, considering pressures from higher operating expenses to support the sharp increases in the number of new projects launched. Despite its aggressive expansion plan, ORI’s debt to equity ratio should stay below 2 times, in order to comply with the financial covenants specified in ORI’s loans.
ORI’s liquidity profile is adequate. The company had Bt151 million in cash plus undrawn credit lines of Bt3,192 million at the end of June 2016. Debts due over the next 12 months amount to about Bt544 million. ORI typically matches the maturities of the short-term debts with the cash it expects to receive from transferring finished condominiums to its customers. Under TRIS Rating’s base-case, ORI’s funds from operations (FFO) to total debt ratio is expected to maintain at around 15% on average, while the EBITDA (earnings before interest, tax, depreciation, and amortization) interest coverage ratio is expected to stay above 3 times over the next three years.
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