TRIS Rating Co., Ltd. has assigned “BBB” ratings with “stable” outlook to the proposed issues of up to Bt300 million and up to Bt800 million in senior secured debentures of Property Perfect PLC (PF). The ratings reflect PF’s proven track record in the housing market and accepted brand name in the middle- to high-priced segment. The strengths are partly offset by weak profitability and cash flow generation compared with its peers. The ratings also take into consideration the slowing economy which will cause a slow demand in the residential property market, the cyclical nature of the industry, and commercial banks’ tighter credit policies, which limit the access by homebuyers to mortgage financing. The issue ratings are enhanced after incorporating the land value of 25 rai in Metro Sky Sukhumvit and 176 rai along route 345, which are pledged as collateral. If the appraisal value of the collateral is less than 1.68 times of the outstanding values of the debentures, the issue ratings will not be enhanced.
The “stable” outlook reflects the expectation that PF will be able to sustain its operating performance during the economic slowdown and the period of low consumer confidence. Profitability and liquidity are expected to improve continually over the next few years. Despite the huge investments needed for construction of condominium projects, leverage should remain in an acceptable level at 50%.
TRIS Rating reported that PF is one of leading residential property developers in Thailand. The company was established in 1985 by Mr. Chainid Ngowsirimanee and was listed on the Stock Exchange of Thailand (SET) in 1993. After concluding a debt-equity swap during debt restructuring, the creditors became the major shareholders. As of May 2009, the three largest creditors, Japan Asia Group Ltd., MJL Intertrade Co., Ltd., and Natee International Law Office Co., Ltd., together held a combined 22.87% of total stakes. PF offers a wide range of products including single detached houses (SDH), duplex houses, townhouses, and condominiums. Its products target middle- to high-income customers with prices per unit ranging from Bt1.7 million to Bt20 million for housing units and from Bt1.2 million to Bt4 million for condominium units. In 2008 through the first quarter of 2009, housing sales remained the largest source of revenue, contributing 72% of total revenue, while condominium sales accounted for the rest. The company’s competitive edge stems from its well-accepted brand name and large land holdings along the future mass transit lines, especially in the Rattanathibet area. PF differentiates its residential projects by providing grand central facilities to homeowners. This feature has become one of the company’s key selling points.
TRIS Rating said, PF’s presales in 2008 reached a record high of Bt6,354 million, rising from around Bt6,000 million per year in 2006 and 2007. Presales declined slightly to Bt3,452 million during the first half of 2009, a 2% drop from the same period of 2008. The drop was a result of slowing residential property demand due to unfavorable economic conditions and lower consumer confidence. Revenue increased to Bt6,266 million in 2007 and Bt7,538 million in 2008, much higher than Bt4,477 million in 2006, due mainly to a transfer of the Metro Park Sathorn Phase1 and 2 projects. During the first quarter of 2009, revenue weakened by 29% from the first quarter of 2008 (including a one-time housing sales of Bt510 million to Property Perfect Fund (PFFUND)), falling to Bt1,452 million. The company’s profitability has improved as the adjusted operating profit margin was 15% during 2008 through the first three months of 2009, compared with 9%-11% during 2006-2007. Despite benefit from government tax incentive packages, profitability remained lower than its peers. Cash flow protection strengthened in 2008 as its funds from operations (FFO) to total debt increased to 19.37% from 8.65% in 2007 before weakening to 2.98% (non-annualized) for the first three months of 2009. The earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio was three times during 2008 through the first quarter of 2009.
The residential property market was volatile over the past year, reflecting national political instability and the global financial crisis. Despite the government tax incentives, which allow a new house transaction of up to Bt300,000 to be deducted from personal income tax, the residential property market in Greater Bangkok is expected to track the overall economy, and will remain sluggish in 2009. To maintain credit quality, developers must prudently manage liquidity and preserve sufficient financial flexibility to meet obligations during uncertain economic environment, said TRIS Rating. -- End
Up to Bt300 million senior secured debentures due within 2011 BBB Up to Bt800 million senior secured debentures due within 2012 BBB Rating Outlook: Stable
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