TRIS Rating Co., Ltd. has affirmed the company and current issue ratings of Quality Houses PLC (QH) at “A-” and has assigned the rating of “A-” to QH’s proposed issue of up to Bt5,000 million in senior debentures. At the same time, TRIS Rating has revised QH’s rating outlook to “stable” from “negative”. The ratings reflect QH’s long track record in the property development industry, strong position in the middle- to high-priced housing market and diverse revenue sources with recurring income from commercial properties. The ratings also take into consideration the company’s financial flexibility from strategic investments in associated companies. The strengths are partially offset by political instability, the cyclical nature of the property development industry, and the relatively high level of financial leverage compared with industry peers.
The “stable” outlook reflects QH’s improved operating performance due to a recovery in housing demand. TRIS Rating expects the company to sustain its leading market share in the high-end segment and balance its product mix to capture changes in the demand for housing. QH’s leverage level remains a concern. The resumption of project expansion plans should not jeopardize efforts to strengthen its balance sheet.
TRIS Rating reported that QH was established in 1983 by Land & Houses PLC (LH). The company is one of the leading property developers in Thailand and has well-established brands in the medium- to high-priced segments. As of April 2010, QH’s major shareholders were LH (25%) and the Government of Singapore Investment Corporation Pte. Ltd. (11%). QH’s competitive edge stems from a strong position in the high-end housing market, stable sources of recurring income from a portfolio of rental properties including Centrepoint serviced apartments and Q-House office buildings, and a growing market presence in the mid-priced housing segment under the Casa Ville and Casa City brands. Housing sales accounted for around 90% of total revenues in 2009, while rental income from office buildings and serviced apartments accounted for the remaining 10%. In 2009, the average unit price across QH’s housing portfolio slid to Bt7.3 million, continuing a decline from over Bt10 million in 2006. The drop in the average unit price reflects a strategy to expand customer base in the middle-income segment. At the end of 2009, QH had inventory of unsold housing units worth approximately Bt17,000 million, about 1.7 times annual sales. In addition, the company owns two condominium projects (Q. House Condo Sathorn and Q. Langsuan) with a combined value of Bt5,810 million. Both projects combined are expected to generate revenue of approximately Bt3,000 million in 2010. Compared with peers, QH’s asset composition differs since around a quarter of total assets are commercial rental properties and strategic investments in associated companies. The rental assets not only provide recurring income and cash flows, but also enhance financial flexibility as the properties can be sold to a property fund. The strategic investments in three associated companies, of which two are traded on the Stock Exchange of Thailand (SET) while another is to be listed on the SET, generate cash dividends of around Bt200-Bt300 million per annum. The dividend receipts are an additional source of funding and serve as a long-term financial cushion.
TRIS Rating said that QH’s revenue in 2009 was Bt11,355 million, up 6.9% from 2008. Operating margin in 2009 dropped slightly to 20.3%, compared with 21.3% in 2008, due to two under-performing Casa City projects. The lower margin was partially offset by government tax incentives which allowed developers to save around 4% of sales through reductions in special business tax and transfer fees. QH’s margin is expected to be in the range of 16%-18% after the tax incentives expire. A reduction in inventory investment in 2009 helped generate operating cash flow to pay down debt. Total debt as of December 2009 stood at Bt12,936 million while the debt to capitalization ratio was at 51.1%, down from 56.8% in 2008. In the short run, the leverage ratio may rise slightly as the company resumes its project expansion plans amid signs of an economic recovery. QH’s liquidity position is supported by cash on hand of Bt1,187 million, unused long-term credit lines of Bt5,994 million as of year-end 2009, and the ability to access the capital market.
TRIS Rating said about the residential property market in 2009 that it was volatile, reflecting political instability and the global economic contraction. The growth in the residential property market in Greater Bangkok, to a certain extent, tracks the state of the domestic economy. The market is expected to recover slightly in 2010 as the economy picks up. However, unpredictable political developments remain a crucial risk factor that could derail consumer confidence. -- End
Company Rating: Affirmed at A- Issue Ratings: QH107A: Bt1,000 million senior debentures due 2010 Affirmed at A- QH10NA: Bt3,000 million senior debentures due 2010 Affirmed at A- QH113A: Bt1,400 million senior debentures due 2011 Affirmed at A- QH11OA: Bt1,200 million senior debentures due 2011 Affirmed at A- QH123A: Bt600 million senior debentures due 2012 Affirmed at A- QH123B: Bt1,300 million senior debentures due 2012 Affirmed at A- QH127A: Bt1,500 million senior debentures due 2012 Affirmed at A- QH127B: Bt1,000 million senior debentures due 2012 Affirmed at A- Up to Bt5,000 million senior debentures due within 2015 A- Rating Outlook: Stable from Negative
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