TRIS Rating Co., Ltd. has upgraded the company rating of Supalai PLC (SPALI) to "BBB+" from "BBB" with "stable" outlook. The upgrade reflects SPALI's improved financial position, its ability to control operating costs, and the successful launches of its economy condominiums. The rating also takes into consideration the company's long track record in the residential market, its accepted brand in single detached house (SDH) and condominium markets, and an experienced management team. These strengths are partially offset by slowing demand for residential property as a result of moderating consumer confidence, rising interest rates, and rising construction costs.
While the "stable" outlook reflects the expectation that SPALI will be able to complete the construction of its condominiums as planned. As a cost-effective residential developer, SPALI should be able to alleviate the increasing pressure from rising interest rates and construction material costs. The company is expected to maintain its conservative funding policy and keep its debt to capitalization ratio at around 50% in the medium term.
TRIS Rating reported that SPALI is one of Thailand's leading property developers, developing SDH, townhouse, and condominium projects in the Bangkok metropolitan area and upcountry. Its products focus on the middle-income market with prices ranging from Bt2 million-Bt7 million per unit. SPALI's competitive edges stem from its ability to control construction costs and to offer housing units at competitive prices in various locations.
In 2005, SPALI's operating performance was impressive. Residential pre-sales sharply increased from Bt3,604 million in 2004 to Bt7,345 million in 2005 due primarily to the success of its economy 'City Home' condominium projects. SPALI sold 3,533 residential units in 2005; 2,764 condominium units and 769 units of SDH and townhouse. Its revenue increased from Bt2,036 million in 2004 to Bt3,441 million in 2005. Its profitability remained favourable since operating profit margins were around 28% for the last two years, which led to respectable pre-tax returns on permanent capital of around 14%-15%. SPALI has been able to keep its financial leverage at an acceptable level, though its project portfolio has grown significantly in recent years.
TRIS Rating also said that competition in the housing market is expected to be moderate in 2006 as less housing units have been offered to the market while demand continues to stabilize. Increasing construction material prices, together with rising interest rates, will put more pressure on developers' margins. The tighter lending policies adopted by commercial banks will likely limit the industry expansion while rising interest rates will likely soften the growth rate of housing demand. - End
Supalai PLC (SPALI) Company Rating: Upgraded to "BBB+" from "BBB" Rating Outlook: Stable