TRIS Rating Co., Ltd. has assigned a “BBB” rating with “stable” outlook to proposed issue of up to Bt520 million in senior secured debentures of Property Perfect PLC (PF). The rating reflects PF’s long track record in the residential property market, its accepted brand name in the middle- to high-priced segment, and an improving financial profile. The company’s strengths are partly offset by its short track records of improving financial profile. The rating also takes into consideration the cyclical nature of the property development industry, slowing economy, and political uncertainty. The issue rating incorporates the value of land of 145 rai in Perfect Park Rama V-Bangyai and 92 rai in Perfect Place Rattanathibet-Ratchapreuk, which are pledged as collateral. Appraisal value of collateral to outstanding debentures is 1.69 times while the company agrees to keep this ratio to be at least 1.6 times throughout the life of debentures.
The “stable” outlook reflects the expectation that PF will be able to maintain its operating performance in the medium term. The company is expected to have better profitability in the near term due to the benefit of the government tax incentives. With an aggressive expansion plan, leverage should be in the range of 50%-55% during the next three years. Continued improvement of its financial profile should be positive for the rating of PF’s debentures.
TRIS Rating reported that PF was established in 1985 by Mr. Chainid Ngowsirimanee. The company was listed on the Stock Exchange of Thailand (SET) in 1993. As a result of a debt-equity swap during debt restructuring, PF’s creditors became the major shareholders after the rehabilitation plan concluded in 2004. Creditors own 90% of the company. As of June 2008, the largest three creditors, Japan Asia Group Ltd., MJL Intertrade Co., Ltd., and Natee International Law Office Co., Ltd., together hold 23% while the founder holds less than 10%. The company has been one of the leading residential property developers in Thailand, focusing on the middle- to high-end residential market segment in the suburbs of Bangkok. Before 2005, PF developed housing projects, including single detached houses (SDH), duplex houses, and townhouses. Housing brands in the company’s portfolio include the Perfect Masterpiece, Perfect Place, Perfect Park, and The Villa. In 2005, the company introduced Metro Park Sathorn, its first condominium project, with an average price of Bt1.9 million per unit. In 2007 and during the first half of 2008, housing sales remained its largest source of revenue, representing 75% of total revenues, while condominium sales contributed approximately 25% of revenue. PF’s competitive edge derives from its well-accepted brands and large land banks located along potential mass transit lines, especially in the Rattanathibet area. Management has built a company image as a developer that provides grand central facilities to homeowners, which have become one of the company’s key selling points, differentiating its projects from others. At the end of June 2008, projects located in the Rattanathibet area made up more than 50% (by value) of all company’s projects.
TRIS Rating said, PF’s presales reached a record high of approximately Bt6,000 million per annum during 2006-2007, as annual condominium presales of Bt1,200-Bt1,300 million was complemented by traditional low-rise housing projects. During the first half of 2008, presales increased by 56% to Bt4,001 million, up from Bt2,567 million in the same period of 2007. Operating performance improved in 2007 and during the first half of 2008. Revenues increased by 40% to Bt6,266 million in 2007, due primarily to starting revenue recognition of Metro Park Sathorn. During the first half of 2008, revenue significantly increased by 62% compared with the same period of 2007 due both to continuing revenue recognition of Metro Park Sathorn and a one-time housing sale of Bt510 million to Property Perfect Fund (PFFUND).
Though PF’s financial performance during the first six months of 2008 improved significantly, more time is needed to prove sustainability. The operating profit margin was relatively low at 8.5% in 2006 and 9.9% in 2007 but strengthened to 14.2% during the first half of 2008. Although total debt declined from Bt7,283 million in 2005 to Bt5,151 million as of June 2008, the earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio, at 1.6 times in 2007 and 3.2 times during the first half of 2008, remained weak compared with peers.
Demand for residential property depends on the country’s overall economic prospects. The Thai economy is forecasted to grow by 4.3%-5.0% in 2008, following 4.8% growth in 2007. However, the residential property market is challenged by slowing economy and political instability. A government stimulus package, which was effective in March 2008, reduces both the special business tax for property developers and the transfer fee. These incentives may provide a short-term boost in demand for residential property. However, consumer confidence remains low because of uncertainty about the overall economy, said TRIS Rating. -- End
Up to Bt520 million senior secured debentures due 2011 BBB Rating Outlook: Stable
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