TRIS Rating Co., Ltd. has affirmed the company rating of Sansiri PLC (SIRI) at “BBB” with “positive” outlook. The rating reflects SIRI’s leading position and strong presence in the condominium segment, its well-accepted brand names in the residential property market and improving profitability, though still lower than its peers. The strengths are partially offset by the current slowing economy which will cause a downturn in the property industry, the cyclical nature of the industry, and commercial banks’ tighter credit policies, which limit access to mortgage financing for homebuyers. The rating also takes into consideration the more intense competitive environment in the condominium segment due to current abundant supply.
The “positive” outlook reflects the expectation that SIRI will be able to strengthen its financial profile by managing construction of several condominium projects as planned. During the slowing economy, revenue will be partly secured by its large condominium backlogs. Transfer risk of its condominium is somewhat reduced by the recent government stimulus tax packages and its higher cash-advance collection scheme, which voluntarily requires an upfront payment of condominium price with attractive discounts. Profitability is expected to improve benefiting from an easing inflationary pressure, the government stimulus package and the aims of SIRI to focus more on controlling operating costs. In a short term, leverage is expected to decrease to be less than 50% when condominium projects are finished and transferred to customers during tax privilege period.
TRIS Rating reported that SIRI is one of the leading property developers in Thailand. As of December 2008, SIRI had 55 residential property projects on hand worth Bt48,578 million. The residential property portfolio consists of condominium (47% of total value), single-detached house (SDH) (44%) and townhouse (9%) projects. The average unit price across the entire residential property portfolio fell to Bt4.4 million, reflecting a strategic shift towards the medium-priced segment. As of December 2008, the company’s total presale backlog was nearly Bt17,000 million, while unsold value of existing residential projects was Bt12,693 million. SDHs constituted nearly 69% of the remaining value, while condominiums and townhouses accounted for 22% and 9%, respectively. SIRI’s main competitive edge stems from its well-accepted brand and strong marketing strategies.
Although overall economy slowed, SIRI’s revenue growth remained favorable due to high backlog volume. Revenue continued to increase, rising to Bt15,037 million in 2008 from Bt13,550 million in 2007. However, SIRI’s presales sharply decreased by 40% to Bt10,430 million in 2008. The decrease of presales was due to fewer project openings in response to the slowing market demand. New condominiums worth Bt5,608 million were launched in 2008 while SIRI recorded condominium presales of Bt4,659 million for the same period. Despite a boost due to benefits from the government’s tax incentive, profitability remained relatively low compared with peers. Operating margin in 2008 increased to 12.2% from 10.2% in 2007. Excluding one-time charges for reconstruction of Condo ONE projects of around Bt429 million, its operating margins in 2008 was around 15%. Earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage declined from 3.3 times in 2007 to 2.8 times in 2008, while funds from operations (FFO) stayed at around 15%-18% over the past three years. The debt to capitalization ratio increased from 47.5% in December 2007 to 52.5% in December 2008, due to additional capital outlays for condominium construction.
TRIS Rating said that the residential property market was volatile over the past year, reflecting the national political and global financial crises. Although residential property demand improved in mid-2008, following the launch of the government stimulus packages early in the year, demand contracted by year-end as a number of negative factors simultaneously hit the market. Despite a more stable political situation in 2009, the slowing economy will negatively impact demand. Moreover, as banks have implemented more stringent credit policies during the economic downturn, this will limit some homebuyers’ access to mortgage financing for new house purchases. The new tax incentives will allow a new house transaction up to Bt300,000 to be deductible from personal income tax. Despite the incentives, the residential property market in the Greater Bangkok is expected to drop by around 10%-20% as the gross domestic product growth is anticipated to possibly contract in 2009. To maintain credit quality, developers must prudently manage liquidity and preserve sufficient flexibility to meet obligations during a slowing economy. -- End
Company Rating: Affirmed at BBB Rating Outlook: Positive
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