TRIS Rating Co., Ltd. has affirmed the company rating of TICON Industrial Connection PLC (TICON) at “A” and has upgraded the ratings of TICON’s senior debentures to “A” from “A-”. The outlook remains “stable”. The ratings reflect TICON’s leading position in the ready-built factory (RBF) industry, recurring cash flows from contractual rental income from factories and warehouses, and strong operating performance. The ratings also take into consideration the current political uncertainty in Thailand and the global economic recovery that is leading to improving manufacturing productions for both domestic consumption and exports. The upgrade for the debenture ratings is based on the proportion of secured debts, which was lowered to a level that does not threaten the claims of the debenture holders when compared with secured creditors.
The “stable” outlook is based on the expectation that TICON will be able to maintain its leadership position in the niche market of rental factories. A strong recovery in key manufacturing sectors and a global economic recovery should lead to increasing demand for new factory and warehouse spaces.
TRIS Rating reported that TICON is the leading RBF provider in Thailand. It was established in 1990 and listed on the Stock Exchange of Thailand (SET) in 2002. The company has expanded its business scope and provided warehouse space for rent since 2005. As of June 2010, the company’s portfolio comprised 125 leased factories and 22 leased warehouses with a total leased space of 433,820 square meters (sq.m.), located in major industrial estates nationwide. While 25% of total revenues were generated by rental factories and warehouses, the major portion of revenue (65%) came from selling assets to property funds. Revenues from assets sold to TICON Property Fund (TFUND) and TPARK Logistics Property Fund (TLOGIS) were approximately Bt2,000 million per year between 2005 and 2009.
As of May 2010, TICON’s major shareholders remained Rojana Industrial Park PLC (Rojana) (21.4%); TICON’s management (10.6%); Thailand Equity Fund (5.9%); and City Realty Group (5.4%). The company’s competitive advantages stem from its proven record of providing quality RBFs to customers and its cost advantage in building standard factories at competitive prices by using an in-house construction team. According to CB Richard Ellis (CBRE), TICON and TFUND had a combined market share in leased factory space of 71.2% as of March 2010. This share is far higher than peer companies, such as Hemaraj Land and Development PLC (10.1%), Pinthong Industrial Park Co., Ltd. (7.6%), Amata Corporation PLC (5.7%), and Thai Factory Development PLC and Thai Industrial Fund 1 (5.5%).
TRIS Rating said, TICON’s total rental income slightly dropped by 0.3% to Bt809 million in 2009. An increase in warehouse rental income offset the drop in factory rental income and stabilized total rental income for 2009. In the first quarter of 2010, the company’s total rental income increased by 5.5% (y-o-y) to Bt205 million, and the occupancy rate (OR) for all TICON tenants improved to 79.8% as of March 2010 from 73.0% as of December 2009. The rise in the OR reflected a recovery in demand for factory space. In 2010, the company plans to sell approximately 90,000 sq.m. of leased factories worth approximately Bt1,800 million to TFUND.
As approximately 70% of TICON’s tenants operate in the electrical, electronics and automotive industries, demand for TICON’s factories is expected to recover in tandem with a strong recovery in these sectors. In the first six months of 2010, the electronics production index increased 39.4% (y-o-y) and the industry capacity utilization rose to 71.8% from 61.6% in 2009. In addition, the vehicle manufacturing index also climbed by 86.9% (y-o-y) while the vehicle capacity utilization rate increased to 70.6% from 53.3% in 2009. The increase in production should boost demand for rental factories and warehouses in subsequent quarters, said TRIS Rating. -- End
Company Rating: Affirmed at A Issue Ratings: TCON109A: Bt500 million senior debentures due 2010 Upgraded to A from A- TICON115A: Bt500 million senior debentures due 2011 Upgraded to A from A- TICON118A: Bt500 million senior debentures due 2011 Upgraded to A from A- TICON128A: Bt650 million senior debentures due 2012 Upgraded to A from A- Rating Outlook: Stable
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