TRIS Rating affirms the company rating and the ratings of the senior unsecured debentures of Supalai PLC (SPALI) at “A”. At the same time, TRIS Rating assigns the rating of “A” to the proposed issue of up to Bt3,000 million in senior unsecured debentures.
The ratings reflect SPALI’s proven track record in the residential property development industry in Thailand, well-known brand name in the middle-income segment, well-balanced portfolio of residential property, and strong financial position. A high level of household debt nationwide and the cyclical and competitive nature of the property development industry remain concerns for the ratings.
SPALI has made investments in some projects outside Thailand and income-generating assets. These investments currently make small contributions to revenue and earnings. The ratings and/or outlook would be positively affected when these investments begin to comprise a greater portion of revenue and earnings.
Revenue grew steadily over the past five years, reaching Bt25,000 million in 2017. However, profitability slid recently. The operating margin (operating income before depreciation and amortization as a percentage of revenue) fell to 27.3% in 2017, down from levels above 30% in the past. Despite the recent decrease, the operating margin is higher than the margin at other property developers rated by TRIS Rating.
The gearing declined recently. The total debt to capitalization ratio fell to 41.3% in 2017 from a peak of nearly 50% in 2015. Going forward, the gearing will rise because the company plans to develop a large mixed-use project on Sathorn road. However, the level of leverage will not rise sharply. SPALI recently issued new warrants (SPALI-W4) which were in the money upon issue. Proceeds from the exercise of the warrants will lower borrowing needs.
RATING OUTLOOK
The “stable” outlook reflects the expectation that SPALI can maintain its sound operating performance and strong financial position. The funds from operations (FFO) to total debt ratio is forecast to stay above 20%, while the total debt to capitalization ratio is forecast to stay below 50% over the next three years.
RATING SENSITIVITIES
The credit upside situation may arise if SPALI’s operating performance and financial performance are significantly stronger than expected. If the investments abroad or the income-generating assets make greater contributions to revenue and earnings, the ratings and/or outlook will be affected positively. In contrast, any significant deterioration in profitability or capital structure could cause the ratings and/or outlook to be revised downward.
TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2098-3000/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand ? Copyright 2018, 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.