TRIS Rating affirms the company rating on Sena Development PLC (SENA) and the ratings on SENA?s senior unsecured debentures at ?BBB?, with a ?negative? rating outlook. At the same time, we assign the rating of ?BBB? to SENA?s proposed issue of up to THB2 billion senior unsecured debentures. The proceeds from the new debentures are intended to be used for debt repayment and working capital.
The ratings continue to reflect SENA?s moderate market position in the middle- to low-income segment of the residential property market and the high-income contribution from investments in joint ventures (JVs). The ratings incorporate increasing pressure on SENA?s financial profile after consolidating Sena J Property PLC (SENAJ)?s weaker operations. The ratings also take into consideration our concerns over the persistently high household debt level and rising inflation which could impact the purchasing power of SENA?s target customers while pushing up the company?s development and financing costs.
SENA reported total operating revenue of THB2.8 billion during the first nine months of 2022, achieving 55% of our full year forecast at THB5 billion. The company?s revenue in the last quarter of 2022 will come mainly from the backlog transfer of its own projects amounting to THB1.9 billion. As a result, its total operating revenue in 2022 could be slightly below our target.
Our base-case scenario projects SENA?s total operating revenue will increase to around THB6 billion annually during 2023-2024, following the increasing number of projects launched. Its earnings before interest, taxes, depreciation, and amortization (EBITDA) will likely improve to THB1.7-THB1.8 billion per annum, with an EBITDA margin of 29%-30%. Its net profit as percentage of total operating revenue, net profit margin, should stay above 17% over the forecast period.
Despite the expected rise in revenue and earnings, the company?s aggressive expansion through its own and JV projects has pressured its financial profile throughout 2022. SENA?s cashflow protection should hit bottom in 2022 before recovering from 2023 onwards. We project SENA?s funds from operation (FFO) to debt ratio will improve to above 10% in 2023-2024 from below 6% in 2022. Its EBITDA interest coverage ratio should increase to around 4 times during 2023-2024 from below 3 times in 2022.
We assess SENA?s liquidity as manageable. As of September 2022, its maturing debts over the next 12 months amounted to THB6.7 billion, comprising THB2.8 billion in short-term bank loans, THB1.1 billion in long-term project loans, and THB2.8 billion in debentures. The company plans to refinance the debentures coming due partly with a new debenture issuance. SENA?s sources of liquidity consisted of THB2.4 billion in cash and cash equivalents as well as THB1.8 billion in undrawn unconditional credit facilities from banks. We forecast FFO to be THB1.2 billion in 2023. SENA also had unencumbered land banks worth THB1.9 billion and unsold finished units in its own debt-free projects worth THB3.7 billion, which can be pledged as collateral for new loans, if needed.
RATING OUTLOOK
The ?negative? outlook reflects our view that SENA?s credit profile will remain under pressure, with uncertainty over the pace of its performance recovery amid unfavorable market sentiment and intense competition in the residential property industry.
RATING SENSITIVITIES
The outlook could be revised to ?stable? if SENA?s operating performance and financial profile are consistent with our expectations. We expect SENA?s operations and financial results to recover steadily from 2023 onwards, with a FFO to debt ratio above 10% and an EBITDA interest coverage ratio above 3 times. We also anticipate SENA will keep its debt to capitalization ratio below 55% over the forecast period.
Conversely, a downward revision would materialize if SENA?s operating performance and/or financial position deteriorates materially, such that the FFO to debt ratio stays below 10% and the EBITDA interest coverage ratio stays below 3 times, with no signs of improvement.
RELATED CRITERIA
- Corporate Rating Methodology, 15 July 2022
- Key Financial Ratios and Adjustments for Corporate Issuers, 11 January 2022
- Issue Rating Criteria, 15 June 2021
Sena Development PLC (SENA)
Company Rating: BBB
Issue Ratings:
SENA249A: THB470 million senior unsecured debentures due 2024 BBB
SENA253A: THB1,200 million senior unsecured debentures due 2025 BBB
SENA259A: THB1,530 million senior unsecured debentures due 2025 BBB
Up to THB2,000 million senior unsecured debentures due within 5 years BBB
Rating Outlook: Negative