TRIS Rating Co., Ltd. has assigned the rating to Supalai PLC’s (SPALI) proposed issue of up to Bt500 million in senior debentures at “A-”. At the same time, TRIS Rating has affirmed the company rating of SPALI at “A-” and has affirmed the rating of SPALI’s existing senior secured debentures at “A”. The outlook remains “stable”. The ratings reflect SPALI’s long presence in the residential property market, accepted brand name in the middle-income segment, ability to efficiently control operating costs, and strong financial position. The strengths are partially offset by an uncertain political situation in Thailand, the cyclical nature of the property development industry, and intense competition in land acquisition. The issue rating of the senior secured debentures incorporates the value of Supalai Grand Tower, which is pledged as collateral at 1.7 times the value of the outstanding debentures throughout the life of the issue.
The “stable” outlook reflects the expectation that SPALI will be able to maintain strong operating performance in the medium term. The company is also expected to sustain a favorable profit margin even though there will be more pressure from expiration of the tax benefits and more intense competition. Additionally, SPALI’s cash flow protection and financial leverage should be controlled at acceptable levels despite its more aggressive expansion plan and a number of condominium projects under construction in the next few years.
TRIS Rating reported that SPALI was established by the Tangmatitham family in 1989. The company is one of Thailand’s leading property developers. As of March 2010, the Tangmatitham family, the largest shareholder, held the stake of 28% in SPALI. At the end of June 2010, SPALI had around 40 existing residential projects with the remaining value of approximately Bt12,000 million available for sale. The company also had a huge backlog of around Bt18,700 million. Across the entire portfolio, SPALI’s residential project portfolio comprises condominium projects (63% of total project value) and housing projects (37%). The company’s competitive edge stems from its ability to control operating costs efficiently. As a result, this enables SPALI to offer the residential units at competitive prices.
SPALI’s presales reached Bt13,237 million in 2009, a 46% growth from Bt9,091 million in 2008. During the first half of 2010, presales significantly increased to Bt8,104 million, up from Bt3,773 million in the same period of 2009. Improving presales resulted from the success of new projects launched during 2009 through the first six months of 2010. SPALI’s revenue was also in the same direction as presales. Revenue jumped by 56% to Bt9,618 million in 2009 from Bt6,170 million in 2008. In the first quarter of 2010, revenue continued to increase, rising sharply by 52% to Bt3,162 million from the same period a year ago. The revenue growth was mainly supported from transfers of condominium units in Supalai River Place and Supalai Park Srinakarin with a combined transfer value of around Bt4,600 million in 2009, and Bt969 million in City Home Ratchada-Pinklao and from more housing units transferred in the first three months of 2010. The company’s profitability remained stronger than most listed property developers as the adjusted operating profit margin was 38.33% in 2009 and 39.69% in the first quarter of 2010. The high profitability was the result of efficient operating cost management. With the improving operating performance, cash flow protection was strengthened. The funds from operations (FFO) to total debt ratio was 77.06% in 2009 and 39.21% (non-annualized) during the first three months of 2010. Financial leverage continuously lowered to 30.10% as of December 2009 and 21.59% at the end of March 2010, down from 48.50% at the end of 2008.
TRIS Rating also said about the residential property market that it was volatile in 2009, reflecting the national political instability and the global financial crisis. Although it recovered in the second half of 2009, the market remained relatively slow and has been increasingly dominated by major developers. After delivering favorable performance in 2009, almost all large developers have set quite aggressive expansion plan for the next two to three years. Acquiring land in appropriate locations will likely be more expensive.
Most government tax incentives expired in 2009 and the rest will expire in 2010. Therefore, demand for residential property in 2010 will depend heavily on consumer confidence and the pace of economic recovery. TRIS Rating expects to see demand for residential property in 2010 to gradually recover alongside growth in the domestic economy. -- End
Company Rating: Affirmed at A- Issue Ratings: SPALI133A: Bt1,000 million senior secured debentures due 2013 Affirmed at A Up to Bt500 million senior debentures due within 2014 A- Rating Outlook: Stable
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