Bangkok--28 Aug--TRIS Rating
TRIS Rating has affirmed the company rating of Univentures PLC (UV) at “BBB” with “stable” outlook. The rating reflects the company’s growing brand recognition in the residential property market, its large capital base, and the support from its major shareholder, Adelfos Co., Ltd. (Adelfos). The rating also reflects UV’s more diversified product portfolio to middle- and high-end housing products after it acquired Golden Land Property Development PLC (GOLD) in late 2012 and Krungthep Land PLC (KLAND) in late 2014, respectively. In addition, UV’s business profile is supported by larger portion of recurring income from rental assets. However, these strengths are partially offset by UV’s relatively high financial leverage from business expansion and its lower operating profit margin compared with most leading property developers. The rating also takes into consideration the cyclical and competitive nature of the property development industry, plus concerns over the slower-than-expected growth in the domestic economy and high household debt levels.
The “positive” outlook reflects UV’s improving operating performance in terms of higher income from residential projects. UV’s credit upside would materialize if the company sustains its strong operating performance while improving its profitability and keeping the debt to capitalization ratio lower than 55% or the interest-bearing debt to equity ratio below 1.2 times on a sustainable basis. On the contrary, the rating and/or the outlook could be revised downward if UV’s operating performance and financial profile are significantly lower than expectation.
UV was founded in 1980 as a zinc oxide producer. The company shifted its business to property development in 2000 by investing in a number of joint ventures with some listed property developers. Adelfos purchased 51.6% of UV’s shares in 2007 and became its controlling shareholder. As of March 2015, Adelfos held a 66.01% stake in UV. Adelfos is owned by the second generation of the Sirivadhanabhakdi family. The family owns and manages a number of property companies under the TCC Group.
UV’s residential property portfolio used to be dedicated to condominium projects, developed by Grand Unity Development Co., Ltd. (GUD). UV expanded to the middle-income housing segment in late 2012 when it purchased a 50.64% stake in GOLD. Currently, UV owns 55.73% of GOLD. In December 2014, GOLD acquired all shares of KLAND for Bt3,560 million. After acquiring KLAND, UV’s consolidated asset base increased by Bt6,000 million. In addition, by acquiring KLAND’s housing project portfolio, UV’s portfolio now extends to the high-end housing segment. As of June 2015, UV owned 25 residential property projects. Its project portfolio comprises eight condominium projects developed by GUD and 17 housing projects developed by GOLD and KLAND. UV had around Bt20,000 million worth of unsold units (including built and un-built units) across its project portfolio as of June 2015.
After the acquisition of GOLD and KLAND, revenue from residential projects contributed around 75% of UV’s total revenue during 2014 through the first half of 2015. The rental property and zinc oxide comprised around 13% and 12%, respectively, of total revenue. UV’s total revenue in 2014 was Bt9,127 million, a 50% year-on-year (y-o-y) rise. Revenue from residential projects sharply increased to Bt6,043 million in 2014 from Bt3,745 million in 2013. Rental assets generated revenue of around Bt1,200 million per year during 2013-2014. UV’s total revenue in the first half of 2015 jumped to Bt6,075 million, up from Bt2,760 million in the same period of 2014. Residential sales soared to Bt4,716 million during the first six months of 2015, as revenue from housing projects climbed. At the end of June 2015, UV’s backlog was worth Bt6,000 million. Units in condominium projects comprised around 80% of the backlog. The units in the backlog will be delivered to customers during the remainder of 2015 through 2017. Over the next three years, UV’s total revenue is expected to reach Bt15,000 million per annum, as the company plans to launch several new residential property projects. Revenue from housing projects will comprise at least 50% of total revenue starting in 2015.
UV’s operating margin, as measured by operating income before depreciation and amortization as a percentage of sales, was 14% during 2012-2013, before decreasing to 11% in 2014. The operating margin rebounded to 14% in the first six months of 2015. UV’s operating margin was relatively lower than most leading property developers. Because of sluggish demand in the residential property market, TRIS Rating expects UV will keep its operating profit margin above 12% over the next three years.
UV’s debt to capitalization ratio was 62% as of December 2014 and 61% as of June 2015. UV’s financial leverage is expected to be lower than the current level since 2016 onwards as the company plans to sublease two office buildings, Park Venture Ecoplex and Sathorn Square, to a real estate investment trust (REIT). UV will use the cash from the REIT transaction to repay debts of around Bt6,500 million. The REIT transaction will partly alleviate the debt financing. With its business expansion, UV is expected to keep its total debt to capitalization ratio below 60%.
UV’s cash flow protection relatively improved. The fund from operation (FFO) to total debt ratio during the first six months of 2015 increased to 8% (annualized with trailing 12 months), compared with 4%-5% during 2013-2014. UV’s financial flexibility was enhanced by an undrawn, unconditional credit facility of around Bt5,400 million as of June 2015.
Univentures PLC (UV)
Company Rating: BBB
Rating Outlook: Positive