TRIS Rating Co., Ltd. has affirmed the company rating of N.C. Housing PLC (NCH) at “BBB”. At the same time, TRIS Rating has revised NCH’s outlook to “negative” from “stable”. The rating reflects NCH’s track record in the middle- to low-income housing market and its recognized
“Baan Pha” brand name. These strengths are partially offset by the company’s relatively weak
financial position, slowing demand for residential property as a result of moderating consumer confidence, rising interest rates, and rising construction costs.
The “negative” outlook reflects NCH’s weaker financial profile compared with the current
rating. However, the outlook may be revised to “stable” if NCH could be able to improve its performance to an acceptable level and maintain its leverage ratio of less than one time in the
medium term.
TRIS Rating reported that NCH is a medium-sized housing developer, focusing on the middle-
to low-income housing market in Bangkok and surrounding areas. The “Baan Pha” brand has
become well known in the northern zone of the Bangkok Metropolitan Area (BMA). As of November 2005, the Tanterdtham family and relatives have owned the majority of NCH’s shares, controlling
a combined stake of approximately 79%. The company currently has 13 real estate projects in development with an average unit price of Bt2 million-Bt3 million.
NCH’s performance in 2005 has been less than expectations. In 2005, NCH earned Bt1,524 million in total revenue, down significantly from Bt2,521 million in 2004. The majority of sales are from the northern zone of the BMA. Since 2002, NCH has expanded its geographic coverage to develop housing projects in the southern and western zones of the BMA. These projects performed below expectations partly due to the company’s unfamiliar location, slow demand and high competition in the southern and western areas. The company’s current profitability is moderate
when compared with its peers. In 2005, its gross margin was 34%, up from 32% in 2004.
TRIS Rating said that competition in the housing market is expected to be moderate in 2006
as less housing units will be offered to the market while demand continues to stabilize. Increasing construction material costs, together with rising interest rates, will put more pressure on developers’ margins. The tighter lending policies adopted by commercial banks will likely limit developer expansion plans, while rising interest rates will likely soften the housing demand. The current
political situation may unfavorably affect the overall residential property market as some
homebuyers are likely to delay decisions to buy new houses. However, the situation is expected
to be resolved in the short term and the impact on the residential market should be temporary.
After resolution, housing demand, especially for the middle- to low-income segment of the
market, is expected to resume to normal. — End
N.C. Housing PLC (NCH)
Company: Affirmed at “BBB”
Rating Outlook: Changed to “Negative” from “Stable”