TRIS Rating Assigns “A-/Stable” Rating to Senior Unsecured Debt Worth Up

TRIS Rating affirms the company rating and the current senior unsecured debenture ratings of

Quality Houses PLC (QH) at “A-”. At the same time, TRIS Rating assigns a rating of “A-” to QH’s proposed issue of up to Bt3,000 million in senior unsecured debentures due within three years. The company will use the proceeds from the new debentures to repay some of its existing loans and fund business expansion.

The ratings reflect QH’s established track record in the property development industry, strong position in the middle- to high-income segment of the housing market, and financial flexibility gained from its investments in marketable securities. The strengths are partially offset by QH’s relatively high level of financial leverage, high household debts nationwide, as well as the cyclical and competitive nature of the residential property industry.

QH’s revenue in the first nine months of 2017 dropped by 14.6% year-on-year (y-o-y) to Bt12,980 million due to the lack of government incentives. The housing segment comprised 79% of QH’s total revenue with the remaining revenue coming from the condominium segment and rental income. Presales in 2017 stood at Bt13,781 million, down 10% y-o-y, since the company did not launch any new condominium projects. Presales of housing projects ranged between Bt13,000-Bt15,000 million per year in the past three years. The gross profit margin of the condominium segment in 2016 through the first nine months of 2017 was 26%-27%, declining from 33%-35% in the past three years, as the company accelerated the sales of finished units in stock. The operating margin (operating income before depreciation and amortization as a percentage of revenue) was 11.86% in 2016 and 8.07% in the first nine months of 2017, decreasing from 13%-16% during 2013-2015.

The total debt to capitalization ratio at the end of September 2017 was 50.13%, decreasing from 52.6% at the end of 2016. This ratio is expected to stay in a range of 50%-55%, taking into account the company’s plan to launch new real estate development projects worth approximately Bt10,000-Bt15,000 million per annum during 2018-2020.

RATING OUTLOOK

The “stable” outlook reflects the expectation that QH’s business profile will remain strong in the medium term. The company’s debt to capitalization ratio is expected to stay below 55% over the next three years.

RATING SENSITIVITIES

QH’s ratings and/or outlook could be revised downward should its operating performance deteriorate significantly from TRIS Rating’s base-case forecast or if the debt to capitalization ratio stays above 60% on a sustainable basis. In contrast, the ratings could be revised upward if the company can improve its operating performance significantly from the current levels while keeping its debt to capitalization ratio lower than 50% on a sustainable basis.

Quality Houses PLC (QH)

Company Rating: A-

Issue Ratings:

QH182A: Bt4,000 million senior unsecured debentures due 2018 A-

QH185A: Bt2,500 million senior unsecured debentures due 2018 A-

QH186A: Bt1,800 million senior unsecured debentures due 2018 A-

QH194A: Bt3,400 million senior unsecured debentures due 2019 A-

QH196A: Bt1,200 million senior unsecured debentures due 2019 A-

QH198A: Bt2,000 million senior unsecured debentures due 2019 A-

QH19NA: Bt2,500 million senior unsecured debentures due 2019 A-

QH205A: Bt4,000 million senior unsecured debentures due 2020 A-

QH20NA: Bt1,500 million senior unsecured debentures due 2020 A-

QH214A: Bt600 million senior unsecured debentures due 2021 A-

Up to Bt3,000 million senior unsecured debentures due within 3 years A-

Rating Outlook: Stable

TRIS Rating Co., Ltd./www.trisrating.com

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TRIS Rating Assigns “A-/Stable” Rating to Senior Unsecured Debt Worth Up to Bt3,000 Million of “QH”