TRIS Rating Co., Ltd. has affirmed the company and issue ratings of Asian Property Development PLC (AP) at “BBB+” with “stable” outlook. The ratings reflect the company’s track record in the residential property development industry; an accepted brand targeting the downtown townhouse and condominium segments; and operating flexibility, which enables the company to promptly adjust the project portfolio to cope with industry trends. The strengths are partially offset by the slowing economy, which caused a slow demand in the property development industry; the cyclical nature of the property development industry; and commercial banks’ tighter credit policies, which limit access by homebuyers to mortgage financing. An additional concern is the company’s aggressive expansion through condominium projects in recent years, which cause higher financial leverage.
The “stable” outlook reflects the expectation that AP will be able to manage construction of its condominium projects and transfer the completed units to customers. Although there will likely be a pressure to use debt to fund the development of condominium projects, leverage is expected to remain at 50%-55% over the next three years.
TRIS Rating reported that AP was established in the 1990s by Mr. Anuphong Assavabhokhin and Mr. Pichet Vipavasuphakorn who together now own a 36% stake of the company. The company develops a variety of products from downtown townhouses, to condominiums and single detached houses (SDH). During the last five years, revenue from real estate sales averaged Bt7,000 million per year. The contribution from sales of each product type to total sales varied each year. Townhouse generated 37%-80% of total sales over the last five years, reflecting the flexibility to adjust the residential project portfolio to match market demand. Condominium sales contributed around 5% to 46% while SDHs contributed 12%-17% over the same period. AP’s main competitive edge stems from the prime locations of the project sites, which focus on downtown area and the capability of management to promptly adjust its project portfolio to match changes in demand. The average unit price across the portfolio increased to Bt4.8 million, reflecting a strategic shift towards SDH projects in recent years. As of March 2009, the company had 30 residential projects on hand, with the remaining value of less than Bt9,000 million in potential sales. Condominiums accounted for 24% of total project value; townhouses and SDHs accounted for 43% and 33%, respectively.
Driven by a strong backlog from previous years, AP’s operating performance during 2008 and the first quarter of 2009 remained strong. In 2008, the company slowed its investment plans in condominium projects because of concerns on the slowing economy. AP generated presales of Bt7,471 million in 2008, a sharp decrease from the peak Bt15,675 million in 2007. However, the backlog remained strong at more than Bt11,000 million as of March 2009, of which around Bt9,600 million were from 10 condominium projects. Revenue from real estate sales increased to Bt9,832 million in 2008 from Bt7,825 million in 2007. In the first quarter of 2009, revenue from real estate sales continued to increase to Bt2,816 million from Bt1,316 million in the same period of 2008 as a result of the completion and transfer of three condominium projects in early 2009. Profitability remained acceptable since the company benefited from the recent government tax incentives. In recent years, AP also incurred less selling expenses from condominiums as the company opened fewer condominium projects after 2007. Operating profit margins increased from 20% in 2007 to around 25% in 2008 and the first three months of 2009. Cash flow protection remained stable as the funds from operations to total debt ratio stayed at 22%-23% throughout 2007 and 2008. Earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage decreased from nine times in 2007 to around seven times in 2008 and the first quarter of 2009 as leverage continued to increase. The company’s debt level increased from Bt5,509 million at the end of 2007 to Bt7,986 million at the end of 2008 and to Bt6,739 million at the end of the first quarter of 2009. It is expected that AP’s debt level will be maintained at around Bt7,000 million through 2009 to reserve for its larger residential project portfolio. Total debt to capitalization, which varied from 48% to 54% in recent years, is expected to stay at this level through the medium term, which would help the company maintain an acceptable financial profile during the construction period of several condominium projects.
TRIS Rating said that the residential property market was volatile over the past year, reflecting the national political instability and 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 a slowing economy. -- End
Company Rating: Affirmed at BBB+ Issue Ratings: AP107A: Bt1,500 million senior debentures due 2010 Affirmed at BBB+ AP117A: Bt1,000 million senior debentures due 2011 Affirmed at BBB+ AP118A: Bt1,000 million senior debentures due 2011 Affirmed at BBB+ AP122A: Bt1,000 million senior debentures due 2012 Affirmed at BBB+ Rating Outlook: Stable
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