TRIS Rating Co., Ltd. has affirmed the company rating of Noble Development PLC (NOBLE) at “BBB+” with “stable” outlook. The rating reflects the company’s well-recognized brand in the middle- to high-end residential property market, product differentiation strategy, and a conservative project expansion. The company’s strengths are partly offset by a deteriorating financial position (on a cash-adjusted basis) during 2007-2008, which was the result of substantial investments in the construction of condominium projects though the unit transfer and cash inflow will mainly occur in 2009. The rating also takes into consideration the cyclical nature of the property development industry, a slowing economy, and political uncertainty.
The “stable” outlook reflects the expectation that NOBLE will be able to sustain its financial performance in the medium term. Cash flow generation and leverage are expected to improve when its condominiums are completed and transferred to the customers on schedule. Profitability in the near term will benefit from the government tax incentives.
TRIS Rating reported that NOBLE is a medium-sized property developer in Thailand. The company was established in 1991 and listed on the Stock Exchange of Thailand (SET) in 1996. The Thanakitamnuay family and related families continue to be the company’s major shareholders with a combined 14% stake. After a strategic shift to condominium development in 2006, condominium sales has become a major source of revenue, constituting more than 60% of total revenue during 2007 and through the first half of 2008. Revenue from single detached houses (SDH) has been approximately 30% of total revenue. NOBLE’s competitive edge derives from its well-accepted brand as a property developer which provides unique and different product designs.
TRIS Rating said, NOBLE’s total revenue improved to Bt2,293 million in 2007 and Bt1,136 million during the first half of 2008, a 9% and 71% rise from the same period of the preceding years, respectively. The rise in revenue had been the result of recognizing more revenue from a condominium construction progress. Though revenue rose, the operating profit margin (on a cash-adjusted basis) weakened to 12.72% in 2007 and 9.40% in the first six months of 2008. As the condominium construction projects are large and only a small portion of the finished units have been transferred to customers, the company’s liquidity deteriorated. The funds from operations (FFO) to total debt ratio was 5.07% in 2007 but fell to -0.8% (non-annualized) during the first half of 2008. The weaker cash flow protection was caused by less FFOs and a high debt burden. Total debt increased from Bt1,770 million in 2006 to Bt2,124 million in 2007 and to Bt2,261 million as of June 2008.
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 a 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 the uncertainty of the overall economy, said TRIS Rating. -- End
Company Rating: Affirmed at BBB+ Rating Outlook: Stable
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