TRIS Rating Co., Ltd. has downgraded the company rating of Sino-Thai Engineering & Construction PLC (STECON) to “BBB-” from “BBB+” with “stable” outlook. The downgrade follows the reported company’s net loss as a result of substantial cost overruns on its large project and deteriorating financial position. The rating, however, continues to reflect STECON’s position as one of top three Thai contractors, and the cyclicality of E&C industry.
The “stable” outlook reflects the expectation that STECON’s financial performance will gradually improve. The cost control measures along with higher margin from power plant construction should positively contribute to operating cash flow. TRIS Rating also expects that the company will strictly implement a selective bidding strategy to emphasize profitability rather than order volumes. However, further provisions for potential losses or adverse changes in STECON’s operating performance will have a negative impact on the rating.
TRIS Rating reported that STECON’s financial performance in the first six months of 2006 was worse than expectation with an operating loss of Bt910 million and a net loss of Bt1,805 million after provision for potential loss on construction projects. The loss was caused by increased construction costs and higher administrative costs from delay on large projects. Funds from operations was negative at Bt690 million. Adjusted operating margin plunged to -10.3% from 5.98% in 2005. The loss wiped out all retained earnings, leaving a retained loss of Bt1,304 million. However, with the proceeds from a capital increase of Bt1,885 million in the first quarter of 2006, total equity decreased by 5.2% from year-end 2005 to Bt3,905 million as of June 2006. Total debt decreased from Bt2,602 million as of December 2005 to Bt2,066 million as of June 2006 due to advance payments received which increased by Bt2,294 million from the year-end 2005.
TRIS Rating said, with a current slowdown of Thai economy, the E&C industry has currently been pressured by slowing demand in property market and a delay in government infrastructure projects. An
impact of higher construction costs remains a major challenge for all contractors and developers. In this weak market, prudent cost management will help contractors to sustain its financial profile. In an effort to stabilize profitability during difficult times, STECON has implemented various cost control measures, including integrating its information system and has gradually subcontracted its labor force. However, looking forward, a slowdown of new projects, rising construction costs and interest rates, the company’s profitability will remains under pressures.
STECON is one of the top three construction contractors in Thailand with a strong market
position in public works construction. In addition to public works, the company specializes in
power plant and petrochemical plant construction. As of June 2006, the company’s backlog was Bt32,216 million, said TRIS Rating. -- End
Sino-Thai Engineering & Construction PLC (STECON)
Company Rating: Downgraded to “BBB-” from “BBB+”
Rating Outlook: Stable
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Copyright 2006, 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 in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. 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.
The “stable” outlook reflects the expectation that STECON’s financial performance will gradually improve. The cost control measures along with higher margin from power plant construction should positively contribute to operating cash flow. TRIS Rating also expects that the company will strictly implement a selective bidding strategy to emphasize profitability rather than order volumes. However, further provisions for potential losses or adverse changes in STECON’s operating performance will have a negative impact on the rating.
TRIS Rating reported that STECON’s financial performance in the first six months of 2006 was worse than expectation with an operating loss of Bt910 million and a net loss of Bt1,805 million after provision for potential loss on construction projects. The loss was caused by increased construction costs and higher administrative costs from delay on large projects. Funds from operations was negative at Bt690 million. Adjusted operating margin plunged to -10.3% from 5.98% in 2005. The loss wiped out all retained earnings, leaving a retained loss of Bt1,304 million. However, with the proceeds from a capital increase of Bt1,885 million in the first quarter of 2006, total equity decreased by 5.2% from year-end 2005 to Bt3,905 million as of June 2006. Total debt decreased from Bt2,602 million as of December 2005 to Bt2,066 million as of June 2006 due to advance payments received which increased by Bt2,294 million from the year-end 2005.
TRIS Rating said, with a current slowdown of Thai economy, the E&C industry has currently been pressured by slowing demand in property market and a delay in government infrastructure projects. An
impact of higher construction costs remains a major challenge for all contractors and developers. In this weak market, prudent cost management will help contractors to sustain its financial profile. In an effort to stabilize profitability during difficult times, STECON has implemented various cost control measures, including integrating its information system and has gradually subcontracted its labor force. However, looking forward, a slowdown of new projects, rising construction costs and interest rates, the company’s profitability will remains under pressures.
STECON is one of the top three construction contractors in Thailand with a strong market
position in public works construction. In addition to public works, the company specializes in
power plant and petrochemical plant construction. As of June 2006, the company’s backlog was Bt32,216 million, said TRIS Rating. -- End
Sino-Thai Engineering & Construction PLC (STECON)
Company Rating: Downgraded to “BBB-” from “BBB+”
Rating Outlook: Stable
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Copyright 2006, 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 in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. 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.