TRIS Rating affirms the company rating of AP (Thailand) PLC (AP) and the ratings of its outstanding senior unsecured debentures at “A-”. At the same time, TRIS Rating assigns a rating of “A-” to AP’s proposed issue of up to Bt3,000 million in senior unsecured debentures due within 4 years. The company plans to use the proceeds from the new debentures to repay some of its existing loans and fund business expansion. The ratings reflect AP’s satisfactory business profile, driven by its proven track record in the residential property development industry, diverse range of products, and moderate backlog, which secures a portion of its future revenues. These strengths are partially offset by the cyclical nature of the property development industry, AP’s moderate use of financial leverage, and concerns over the relatively high level of household debt nationwide.
AP was established in 1990 by Mr. Anuphong Assavabhokhin and Mr. Pichet Vipavasuphakorn. The company was listed on the Stock Exchange of Thailand (SET) in 2000. As of May 2017, AP’s major shareholder was Mr. Anuphong Assavabhokhin, owning 21.3% of the company’s shares. In 2013, AP started to develop condominium projects together with a subsidiary of Mitsubishi Estate Co., Ltd. (MEC), the top 3 largest property developer in Japan. AP held a 51% stake in the joint venture (JV) while MEC’s subsidiary held 49%.
AP’s revenue base has ranked it fourth among the property developers listed on the SET over the past five years. AP’s products cover almost all of the key segments in the residential property market. Each product segment has generated strong presales and as a result, AP has captured a respectable market share in each of these segments. The company’s track record is particularly strong in the mid-range to high-end townhouse and condominium segments. AP offers its products primarily within the Greater Bangkok area.
In the first 11 months of 2017, AP’s owned projects generated presales of Bt18,333 million. The company also had Bt23,253 million of presales from condominium projects undertaken by the JV, about Bt22,337 million generated from three condominium projects, including the Life Ladprao, the Life ๑ Wireless, and the Life Asoke-Rama 9. Each project generated presales around Bt6,300-Bt8,600 million. As of November 2017, the value of AP’s backlog stood at Bt12,850 million, comprised of Bt6,983 million of housing backlog and Bt5,867 million of condominium backlog. A condominium backlog worth Bt2,800 million will be recognized as revenue in 2017, while Bt2,260 million will be recognized in 2018, and Bt800 million in 2019. The backlog of the JV is currently worth around Bt29,472 million. This backlog will be recognized as revenue from 2018 onwards.
AP’s financial profile during the past 12 months was in line with TRIS Rating’s expectation. Revenue in the first nine months of 2017 stood at Bt13,937 million, up 7% compared with the same period last year. The operating margin (operating income before depreciation and amortization as a percentage of revenue) in the first nine months of 2017 was 13.5%, decreasing from an average of 15% over the past five years. The drop in the operating margin was due to higher operating expenses as the company accelerated the sales of the finished units in the stock. The total debt to capitalization ratio (including 51% of the debt carried by the JV) at the end of September 2017 was 52.6%, increasing from 47.5% at the end of 2016. The total debt elevated from large condominium project launched in this year.
During 2017-2019, TRIS Rating’s base-case forecast assumes AP’s revenue will range from Bt20,000-Bt22,000 million per annum. The operating margin is expected to hold at 12%-15%. The net profit margin during the next three years is expected to improve as AP will recognize a significant share of profit from the JV projects. In TRIS Rating’s forecast, AP’s debt to capitalization ratio is expected to stay around 50%-55% over the next three years, or the net debt to equity ratio will be around 1-1.2 times.
AP’s liquidity position is adequate. The company had Bt1,426 million in cash on hand, plus undrawn long-term credit lines of Bt5,634, million and short-term credit lines of Bt4,626 million at the end of November 2017. Debts due over the next 12 months (excluding project loans) amount to around Bt8,300 million. AP typically matches the maturities of its short-term debts with the cash it expects to receive from transferring finished condominiums to its customers. AP plans to refinance most of the maturing bonds with new bond issues. The maturing bonds are backed up by AP’s undrawn bank credit lines. Over the next three years, TRIS Rating’s projections show funds from operations (FFO) at Bt2,500-Bt3,000 million per annum. The FFO to total debt ratio is expected to stay around 12%-15%, while the EBITDA (earnings before interest, tax, depreciation, and amortization) interest coverage ratio is expected to stay above 4 times.
Rating Outlook
The “stable” outlook reflects the expectation that AP will remain competitive in its core market segments and will rebalance its product portfolio as market conditions and customer needs change. The outlook is also based on the expectation that AP will continue to follow prudent financial policies and keep the debt to capitalization ratio below 55% over the next three years.
The company’s ratings and/or outlook could be revised downward should its financial profile deteriorate significantly from the current level or if the debt to capitalization ratio stays above 55% on a sustained basis. In contrast, the ratings could be revised upward if the company can improve its profitability while its debt to capitalization ratio declines to 40%-45% on a sustained basis.
AP181A: Bt1,250 million senior unsecured debentures due 2018 A- AP181B: Bt500 million senior unsecured debentures due 2018 A- AP188A: Bt1,250 million senior unsecured debentures due 2018 A- AP191A: Bt350 million senior unsecured debentures due 2019 A- AP191B: Bt1,000 million senior unsecured debentures due 2019 A- AP191C: Bt500 million senior unsecured debentures due 2019 A- AP197A: Bt1,000 million senior unsecured debentures due 2019 A- AP197B: Bt1,000 million senior unsecured debentures due 2019 A- AP201A: Bt1,500 million senior unsecured debentures due 2020 A- AP207A: Bt1,500 million senior unsecured debentures due 2020 A- Up to Bt3,000 million senior unsecured debentures due within 4 years A- Rating Outlook: Stable
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