TRIS Rating Co., Ltd. has assigned the company rating of Italian-Thai Development PLC (ITD) at "A-" with "stable" outlook. The rating reflects ITD's strong position as the largest general construction contractor in Thailand, its strong backlog, broad product line, geographic diversity, backward integration to produce certain key raw materials, and the positive prospects of the engineering and construction (E&C) industry in Thailand. These strengths are partly offset by the wide swings of demand in the E&C industry and intense competition in the market.
While the "stable" outlook reflects the expectation that the company will maintain its competitive position as Thailand's largest local construction contractor and will exercise discipline by maintaining reasonable margins in its bids for mega projects. TRIS Rating also expects that ITD will maintain prudent investment policies by not diversifying into non-related businesses.
TRIS Rating reported that ITD is Thailand's largest local construction contractor with total revenue in 2004 of Bt30,454 million, almost four times the revenue of the second largest construction contractor. The company operates nine business divisions, foreign branches in Taiwan and the Philippines, and one construction subsidiary in India. Revenue from public construction projects is, and will continue to be, a significant part of ITD's revenue. Total backlog as of 2 September 2005 was Bt55,061 million, of which 85% was public projects and 15% private projects. ITD has competitive advantages in terms of its strong track record, good relationships with both private and public sector clients, economies of scale, self-sufficiency in key materials, an extensive machinery and equipment fleet, and sufficient supply of skilled labor and engineers.
TRIS Rating said, although the industry is fragmented, only a few major contractors benefit from the high barriers to entry particularly for public projects. Only pre-qualified contractors will be able to bid on public projects. The three largest contractors will continue to enjoy rising backlogs based on their proven track records and stronger financial standings. It is anticipated that the top three contractors have high potential to win bids on several of the government's mega projects that are expected to be launched during the next five years. Transport infrastructure projects, for which ITD has expertise and strong track record, should drive ITD's revenue growth in the medium term. In addition, ITD has advantages in plant and equipment (pre-cast concrete fabrication) as well as expertise in the construction of low income housing, which should enhance its competitive position when bidding for the Baan Aua Arthorn project.
TRIS Rating also said that the major risk for E&C firms is volatile demand, which makes earnings and cash flows unpredictable. ITD's more conservative financial policy implemented after the 1997 financial crisis will help the company survive during industry downturns. Following successful rehabilitation in 2002, ITD's financial position improved considerably. Its total debt declined by Bt8,214 million from Bt14,172 million in 2001 to Bt5,958 million in 2002 but increased to Bt11,366 million at the end of September 2005 because of additional working capital needed for its projects. Total debt is expected to decline through the year end as the company receives project payments. Funds from operations to total debt increased from 7% in 2001 to 22% in 2004. Total debt to capitalization was 41% at the end of September 2005. The adjusted operating margin at the end of September 2005 was 5.5%, down from 8% in 2004, but it is expected to improve slightly in the medium term. - End
Italian-Thai Development PLC (ITD) Company Rating: A- Rating Outlook: Stable