TRIS Rating affirms the company rating on Sansiri PLC (SIRI) and the ratings on SIRI?s existing senior unsecured debentures at ?BBB+?, with a ?stable? rating outlook. We also affirm the ratings on SIRI?s subordinated capital debentures (hybrid debentures) at ?BBB-?. At the same time, we assign the rating of ?BBB+? to SIRI?s proposed issue of up to THB100 million in senior unsecured debentures due within 3 years and up to THB5 billion in senior unsecured debentures due within 4 years. The proceeds from the new THB100 million debentures will be used for educational charity purpose and the new THB5 billion debentures will be used for debt repayment and working capital.
The ratings on SIRI and its debentures reflect the company?s diverse product portfolio, its strong competitive position in both landed property and condominium segments, and its relatively high financial leverage. The ratings also incorporate our concerns over the drawn-out Coronavirus Disease 2019 (COVID-19) pandemic, which is likely to continue to pressure the demand for residential properties and the profitability of developers for an extended period. However, SIRI?s well-diversified product portfolio and well-recognized brands should give the company the flexibility to adjust its portfolio to meet customer demand and retain its market position.
SIRI?s net presales in 2021 was THB26.1 billion, nearly the same amount as 2020. SIRI reported total operating revenue of THB22.1 billion, a 16% y-o-y drop, in the first nine months of 2021 as the company had toned down promotional campaigns following its aggressive promotions in 2020. We view SIRI?s operation and earnings during the remainder of 2021 through 2022 will to some extent continue to be affected by the prolonged pandemic. However, SIRI?s operating results should be in accordance with our expectation.
Our base-case scenario expects SIRI?s total operating revenue to be in the THB29-THB32 billion per annum range during 2021-2023. Revenue from residential property sales remains the key contributor, accounting for around 90% of SIRI?s total operating revenue. We project SIRI?s earnings before interest, taxes, depreciation, and amortization (EBITDA) to range from THB6.0-THB6.6 billion annually and EBITDA margin to hover around 20%. EBITDA in the first nine months of 2021 was THB5.1 billion, around 23% of total operating revenues. SIRI?s net profit during the first nine months of 2021 was THB1.7 billion or 8% of total operating revenue. We expect SIRI to keep its net profit margin at around 7%-8% of total operating revenue over the forecast period.
As of December 2021, SIRI had 58 existing landed property projects and 27 condominium projects (including seven condominium projects under joint ventures (JVs)), with total unsold value of THB52.5 billion (including built and un-built units). Landed property projects constituted 56% of the total remaining value, while condominium projects accounted for the rest. SIRI?s backlog at the end of 2021 stood at THB17.2 billion, comprising THB14.5 billion in backlog of its own projects and THB2.7 billion in backlog under JVs. We expect SIRI to deliver backlog worth THB9.9 billion in 2022, THB6.6 billion in 2023, and the rest in 2024.
We foresee SIRI?s financial leverage to remain high over the forecast period as the company plans to launch more of its own condominium projects than JV projects and enlarge landed property portfolio. We also forecast the company to fund land and construction costs for its industrial estate for rent project under JV with 70% debt and 30% equity throughout the development period. SIRI may also have some additional co-investment with partner in financial service business. With the uncertainties in both domestic and global economy, we view that SIRI should be more cautious in business expansion in residential property development and other investments. We expect SIRI to keep its debt to capitalization ratio below 66% and the ratio of its funds from operations (FFO) to total debt in the 5%-10% range in order to maintain its ratings at the current levels.
We assess that SIRI will have relatively tight liquidity but should be manageable over the next 12 months. As of September 2021, SIRI?s maturing debts over the next 12 months amounted to THB27.9 billion, comprising THB13.9 billion debentures, THB5.9 billion long-term project loans, THB5.4 billion promissory notes (P/Ns), THB2.6 billion short-term bills of exchange (B/Es), and THB0.1 billion lease liability. Capital expenditures for other investments are set at around THB250 million in the next 12 months. Dividend payment is around 50% of net profit. At the end of September 2021, SIRI?s sources of funds consisted of THB2.8 billion cash and THB12.5 billion committed credit facilities from banks, around THB2.5 billion of which could be drawn unconditionally, and the remaining was available for construction. FFO over the next 12 months is forecast to be THB3.3 billion. SIRI usually refinances its matured debentures by new debenture issuance. Project loans are normally repaid with proceeds from the underlying projects? unit transfers. In addition, SIRI had unencumbered land banks at book value of THB13.4 billion and remaining finished units in its own debt-free projects with selling prices of THB4.2 billion, which can be pledged as collaterals for new loans (if needed).
As of September 2021, SIRI had total debt of THB67.4 billion (per priority debt consideration), including the priority debt of THB18.6 billion. SIRI?s priority debt included secured debt at the parent company and its subsidiaries. As the ratio of its priority debt to total debt was 28% below the threshold of 50% according to TRIS Rating?s ?Issue Rating Criteria?, we view that SIRI?s unsecured creditors are not significantly disadvantaged with respect to claims against the company?s assets.
RATING OUTLOOK
The ?stable? outlook reflects our expectation that SIRI will be able to deliver its operating results and sustain its financial profile as targeted. We expect the company to keep its debt to capitalization ratio below 66% and its FFO to total debt ratio in the 5%-10% range over the forecast period. We also expect SIRI to retain its pretax return on permanent capital (ROPC) ratio above 5%.
RATING SENSITIVITIES
SIRI?s ratings and/or outlook could be revised downward should the company?s operating performance and/or financial position significantly deteriorate from our expectation. On the contrary, a credit upward revision could occur if SIRI?s financial profile improves to the levels attained by its higher-rated peers, such that the debt to capitalization ratio stays below 55% and the FFO to total debt ratio increases to 10%-15% on a sustained basis.
RELATED CRITERIA
- Key Financial Ratio and Adjustments for Corporate Issuers, 11 January 2022
- Hybrid Securities Rating Criteria, 28 June 2021
- Issue Rating Criteria, 15 June 2021
- Rating Methodology ? Corporate, 26 July 2019
Sansiri PLC (SIRI)
Company Rating: BBB+
SIRI222A: THB4,933.4 million senior unsecured debentures due 2022 BBB+ SIRI229A: THB2,000 million senior unsecured debentures due 2022 BBB+ SIRI229B: THB2,500 million senior unsecured debentures due 2022 BBB+ SIRI231A: THB4,000 million senior unsecured debentures due 2023 BBB+ SIRI236A: THB4,000 million senior unsecured debentures due 2023 BBB+ SIRI243A: THB500 million senior unsecured debentures due 2024 BBB+ SIRI247A: THB2,000 million senior unsecured debentures due 2024 BBB+ SIRI24OA: THB3,600 million senior unsecured debentures due 2024 BBB+ SIRI24DA: THB800 million senior unsecured debentures due 2024 BBB+ SIRI24DB: THB500 million senior unsecured debentures due 2024 BBB+ SIRI252A: THB6,000 million senior unsecured debentures due 2025 BBB+ SIRI26DA: THB200 million senior unsecured debentures due 2026 BBB+ SIRI20PA: THB3,000 million subordinated capital debentures (hybrid debentures) BBB- THB2,050 million subordinated capital debentures (hybrid debentures) BBB- Up to THB100 million senior unsecured debentures due within 3 years BBB+ Up to THB5,000 million senior unsecured debentures due within 4 years BBB+ Rating Outlook: Stable TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: +66 2 098 3000/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand ? Copyright 2022, 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 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 www.trisrating.com/rating-information/rating-criteria