TRIS Rating Co., Ltd. has affirmed the company rating of Rojana Industrial Park PLC (Rojana) at “A-” with “stable” outlook. The rating reflects Rojana’s diversified base of revenue, proven record in industrial property development, reliable income from electricity and utilities sales, as well as strong support from its major shareholders and Japanese partner. The rating also takes into consideration the volatile nature of the industrial property market and the slowdown of the property market in China.
The “stable” outlook reflects the expectation that the ongoing economic recovery will subsequently lead to growing demand for industrial property. Rising contribution from the power and utilities businesses will provide more reliable cash flow streams for Rojana to counterbalance the fluctuations in condominium and industrial property sales.
TRIS Rating reported that Rojana is one of the leading industrial property developers in Thailand, established in 1988 by the Vinichbutr family and the Sumitomo Group. In addition to industrial and utilities sales, the company also developed condominium projects in Thailand and China. During the last three years, industrial and residential property sales accounted for 30% of Rojana’s total revenues while approximately 70% was from electricity and utilities sales. Currently, Rojana owns and operates two industrial parks in Ayudhya and Rayong provinces. During 2007-2009, land sales averaged 400-500 rai per year, with cumulative land sales of 5,826 rai as of June 2010. Based on an average of 500 rai of land sold per year, the remaining salable area of 3,813 rai is sufficient for future development.
TRIS Rating said, Rojana holds 41% stake in Rojana Power Co., Ltd. (Rojana Power), located in the Ayudhya Industrial Park. Rojana Power has continuously increased its electricity generating capacity to support growing customer bases in the industrial park. Rojana’s electricity generating capacity increased from 122 megawatts (MW) in 2004 to 267 MW by the end of June 2010. Of this amount, 90 MW is sold to The Electricity Generating Authority of Thailand (EGAT) under the Small Power Producer (SPP) scheme; the remainder is sold to Rojana’s industrial customers. During 2009 through the first half of 2010, electricity and water sales contributed approximately two-thirds of total revenue and 45%-50% of total earnings before interest, tax, depreciation and amortization (EBITDA).
Rojana’s condominium business in China is progressing rather satisfactorily despite a sales slowdown. In the first half of 2010, the Chinese government implemented a stringent lending policy to control the property business in China. Rojana’s first high rise project, Kaina Business Plaza, is located in Changzhou. The project consists of 993 units of condominium project and 204 rooms of hotel project. The sales of condominium progressed to 68% of the salable area as of June 2010, compared with 64% as of December 2009 and 67% as of March 2010. Construction of the condominium is now completed and units are being transferred to owners. The construction of hotel is expected to complete by the end of 2010. Rojana launched its second condominium project, Kaina Overseas Chinese City, in September 2009 near the first one. This project comprises 530 units worth Bt4,050 million. Sales of the second project have progressed well amidst a tough property business environment. As of June 2010, 284 units or 54% of total units were sold; construction was 24% completed. The success of the condominium projects in China will be challenged by more stringent lending policies and further measures of the Chinese government to soften the property market in China.
A well diversified revenue base and relatively stable electricity income provided strong support to Rojana’s earnings in 2009. Rojana reported net profit of Bt757 million, growing by 26% from 2008, amidst poor earnings reported by peers in the industrial estate industry. Rojana’s industrial land sales dropped to 394 rai in 2009 from 510 rai in 2008 but more revenue from condominium business in China and reliable electricity sales offset the drop in industrial land sales. In the first half of 2010, Rojana’s earnings improved following the economic recovery. Total revenue increased by 36% over the same period of last year (year-on-year: y-o-y) to Bt3,847 million. Almost every business generated higher revenue, especially land sales and condominium sales. The power business also performed well with 18% revenue growth following the higher utilization rates of most customers, especially the electronics and electrical appliances sectors, Rojana’s major customers. Net profit, therefore, soared by 86% y-o-y to Bt347 million in the first half of 2010.
Rojana’s total debt to capitalization is normally high due to the consolidation of high-leveraged power business. As of June 2010, total debt was Bt10,310 million and its total debt to capitalization ratio was 57%. Rojana plans to expand power business, adding totally 164 MW to the current level of 267MW. The new capacity consists of 52MW sold to industrial users and 112MW under the SPP scheme. Both power projects are expected to commence operation in 2013 and require a combined investment of Bt7,300 million during 2010-2013. Including the construction cost of approximately Bt3,000 million to complete the two condominium projects in China, the debt to capitalization ratio will rise significantly in the next few years. The company’s capital structure will improve if its equity base is enlarged from 246.8 million units of warrant exercised which will add Bt987 million to equity base. In addition, Rojana plans to divest a 204-room hotel in China in the future to maintain its debt to equity ratio at less than 2 times. -- End
Company Rating: Affirmed at A- Rating Outlook: Stable
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