TRIS Rating Co., Ltd. has assigned a “BBB-” rating to the proposed issue of up to Bt1,500 million in senior debentures of Sansiri PLC (SIRI). At the same time TRIS Rating has affirmed the company rating of SIRI at “BBB”. The outlook remains “positive”. The ratings reflect 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 it is still lower than 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 ratings also take 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 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 packages 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 brands 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 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 incentives, 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, the residential property market was volatile over the past year, reflecting the national political and global financial crises. Residential property demand contracted during late 2008 as a number of negative factors simultaneously hit the market. The civil disturbances in mid April, which led to the declaration of the Emergency decree, will cause the economy to slow down much more than earlier expectation and will negatively impact demand, though the government could subsequently control the situations. It remains in questions whether the Thai political will be stable for the rest of 2009. The less stable the political climate in Thailand, the more likely the residential demand will be sluggish. It is expected that the government will launch more stimulus packages to boost the residential property in addition to the recent tax incentives, which 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 more than 20%, in line with the gross domestic product growth, which is anticipated to 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 Issue Rating: Up to Bt1,500 million senior debentures due within 2012 BBB- Rating Outlook: Positive
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