TRIS Rating affirms the company rating on Golden Land Property Development PLC (GOLD) at “A-”. At the same time, TRIS Rating assigns the rating to GOLD’s proposed senior unsecured debentures of up to Bt3 billion at “A-”. The proceeds from the debentures are intended to be used to replace debentures maturing in November 2019 and for working capital.
The ratings reflect GOLD’s status as a core subsidiary of Frasers Property (Thailand) PLC (FPT), growing brand recognition and revenue in the landed property market, improving profitability, and reliable stream of income from rental properties. The rating also takes into consideration the company’s rising leverage, resulting from its aggressive business expansion, and concerns over the introduction of new loan-to-value (LTV) rules by the Bank of Thailand (BOT), which has partly caused a slowdown in the industry.
GOLD’s total operating revenues grew sharply to Bt15.8 billion in fiscal year (FY)2018 from Bt9.3 billion in FY2017. Its total operating revenues increased by 13% year-on-year (y-o-y) to Bt13 billion in the first nine months of FY2019. Under TRIS Rating’s base case scenario, we expect GOLD’s total operating revenue to stay at Bt15-Bt18 billion per annum during FY2019-FY2022. We expect GOLD’s residential properties for sale to remain a major contributor accounting for around 90% of total operating revenues. We also expect that rental properties will generate income of Bt1.2-Bt1.5 billion per annum, or around 10% of total operating revenues, during FY2019-FY2020. The income from rental properties will likely decrease to Bt0.7 billion per annum, or around 4% of total operating revenue, during FY2021-FY2022.
As of June 2019, GOLD had 44 existing landed property projects. Around 95% of the projects are located in Bangkok and its vicinity, with the remainder located upcountry. Total unsold project value (including built and un-built units) was Bt21.6 billion and the total backlog was Bt4.5 billion. The backlog will be delivered to customers during the remainder of FY2019 through FY2020.
GOLD’s operating margin increased to 19%-20% during FY2017 through the first nine months of FY2019, from 17%-18% during 2014-2016. Its operating margin remained above the industry average of 15%. The company’s net profit margin was 12%-13% during FY2017 through the first nine months of FY2019, up from 8%-10% during 2014-2016. Its net profit margin was in line with the industry average of 10%-12%. However, going forward, GOLD’s profitability could be pressured by rising land costs and more intense competition in the landed property segment. In any case, we expect GOLD to keep its operating margin around 15% and its net profit margin above 10% during FY2019-FY2022.
Despite its continued growth plan, TRIS Rating expects GOLD’s need for capital to remain moderate due to the shorter development period of landed properties than that of condominiums. We expect GOLD to maintain its debt to capitalization ratio below 55% and its funds from operations (FFO) to total debt ratio to stay above 10% over the next three years.
We assess GOLD to have adequate liquidity over the next 12 months. As of June 2019, GOLD’s sources of funds consisted of Bt1.1 billion in cash on hand plus undrawn committed credit facilities of project loans of Bt1.2 billion and undrawn credit facilities of short-term loans of Bt3.1 billion. TRIS Rating forecasts GOLD’s FFO over the next 12 months to be around Bt2 billion. Debts due over the next 12 months will amount to Bt9.7 billion, comprising Bt4.6 billion in short-term bills of exchange (B/Es) and promissory notes (P/Ns), Bt4 billion in debentures, and Bt1.1 billion in project loans. Short-term B/Es and P/Ns will either be rolled over or repaid within the next 12 months, and project loans will likely be repaid with cash flow from the transfers of residential unit. Debentures will likely be refinanced with new bond issuance or loans from the parent company.
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RATING OUTLOOK
The “stable” outlook reflects TRIS Rating’s expectation that GOLD will remain a core subsidiary of FPT. Despite more intense competition in the residential property market, TRIS Rating expects GOLD to keep its operating margin around 15% during FY2019-FY2022. The company should maintain its debt to capitalization ratio below 55%.
RATING SENSITIVITIES
GOLD’s rating and/or outlook will depend not only on its operating performance but also on the financial position of the Group. A stronger operating performance and/or financial profile of the Group will help support the rating of GOLD. On the contrary, a weaker operating performance and/or financial profile of the Group will negatively impact the rating of GOLD.
RELATED CRITERIA
- Rating Methodology – Corporate, 26 July 2019
- Key Financial Ratios and Adjustments, 5 September 2018
- Group Rating Methodology, 10 July 2015
Up to Bt3,000 million senior unsecured debentures due within 3 years A- Rating Outlook: Stable
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