TRIS Rating affirms the company rating on AP (Thailand) PLC (AP) and the ratings on 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 Bt2,000 million in senior unsecured debentures due within three 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’s operating performance in the first nine months of 2018 was higher than TRIS Rating’s expectation. As of September 2018, AP’s owned projects generated presales of Bt21,904 million, up 54% from the same period last year. The company also had Bt8,797 million of presales from condominium projects undertaken by the joint venture (JV). AP’s revenue in the first nine months of 2018 was Bt19,080 million, up 36% year-on-year (y-o-y). Revenues from housing segment increased 46% y-o-y. The operating margin (operating income before depreciation and amortization as a percentage of revenue) was 14.8% in the first nine months of 2018, decreasing from 15.5%-17.0% during 2015-2017. This ratio dropped because the lower gross profit margin of the condominium segment and relatively high selling and administrative expenses. The gross profit margin of the condominium segment in the first nine months of 2018 was only 28%, declining from 34%-37% in the past three years.
At the end of September 2018, the value of the backlog stood at Bt9,831 million, splitting between the housing units worth Bt5,543 million and the condominium units worth Bt4,288 million. The backlog will be recognized as revenue in 2018 and 2019. The backlog of the projects under the JV was Bt36,527 million and will be transferred from 2018 onwards. TRIS Rating expects that AP will realize share of profit from investments in its JVs of around Bt600-Bt1,000 million per year during 2018-2021.
The debt to capitalization ratio (including 51.0% of the debt carried by the JV) at the end of September 2018 was 51.9%, slightly increased from 51.2% at the end of 2017. We expect AP’s debt to capitalization ratio to stay around 50.0%-55.0% over the next three years.
AP’s liquidity position is adequate. At the end of September 2018, AP has debts due over the next 12 months of Bt10,240 million, comprising Bt6,389 million in short-term bills of exchange (B/Es) and promissory notes (P/Ns), and Bt3,850 million in bonds. AP plans to refinance most of the maturing bonds with new bond issues. AP’s liquidity source was cash on hand at the end of September 2018, standing at Bt785 million, and undrawn committed credit facilities at Bt8,923 million. We forecast AP’s funds from operations (FFO) over the next 12 months to hold above Bt3,000 million.
RATING OUTLOOK
The “stable” outlook reflects TRIS Rating’s expectations 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 our expectation that AP will continue to follow prudent financial policies and keep the debt to capitalization ratio below 55.0% over the next three years.
RATING SENSITIVITIES
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 55.0% 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 40.0%-45.0% on a sustained basis.
RELATED CRITERIA
- Rating Methodology – Corporate, 31 October 2007
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.