TRIS Rating has assigned a rating of “A-” to the proposed issue of up to Bt2,000 million in five-year senior unsecured debentures of Quality Houses PLC (QH). At the same time, TRIS Rating has affirmed the company and current senior unsecured debenture ratings of QH at “A-”. TRIS Rating has also affirmed the rating of three-year senior unsecured debentures, with the remaining amount of Bt1,970 million, at “A-”. The outlook remains “stable”. The company will use the proceeds from the new debentures to repay short-term loans. QH’s ratings reflect the company’s established track record in the property development industry, strong position in the middle- to high-income segment of the housing market, and financial flexibility from its investments in marketable securities. The strengths are partially offset by the cyclical nature of the property development industry and its relatively high level of financial leverage. The “stable” outlook reflects the expectation that QH’s business profile will remain strong in the medium term. The company’s debt to capitalization ratio is expected to stay below 60%, or the interest-bearing debt to equity ratio to stay below 1.5 times, for an extended period.
QH was founded in 1983 and is one of the leading property developers in Thailand. As of March 2014, QH’s major shareholders were Land and Houses PLC (LH, owning a 25% stake) and the Government of Singapore Investment Corporation Pte. Ltd. (11%). QH’s business profile is strong. Revenue stood at Bt19.7 billion in 2013, ranking the fifth among the property developers listed on the Stock Exchange of Thailand (SET). QH has a strong market position, particularly in the segment of single-detached houses (SDH) priced over Bt5 million per unit. Over the past few years, the company has also delivered an acceptable performance in the segments with lower-priced housing units, such as Bt1-Bt3 million per unit. The company’s housing brands are well-recognized and accepted by buyers.
QH’s financial profile improved during 2013 through the first quarter of 2014, driven by growth in the low-priced housing segment with unit price of Bt1-Bt3 million and more transfers of finished condominiums to customers. Revenue in the first quarter of 2014 stood at Bt4.1 billion, up 21% compared with the first quarter of 2013. QH’s operating margin (operating income before depreciation and amortization as a percentage of revenue) was 14.1%, up from 12.1% in the first quarter of 2013. The debt to capitalization ratio at the end of March 2014 was 56.3%, increasing slightly from the end of 2013. However, presales in the first quarter of 2014 stood at Bt4.1 billion, down 41% from the same period a year ago. The company launched only one small SDH project during this period amid concerns over the domestic political turmoil.
During 2014-2016, TRIS Rating’s base case scenario expects QH to generate revenues of around Bt20 billion per annum. Revenues from low-rise housing projects should account for 60%-70% of total revenues. At the end of March 2014, QH’s backlog of condominium units was worth Bt8.7 billion. The condominium units in the backlog are expected to be transferred during 2014-2015 at Bt4.0-Bt4.5 billion in revenue each year. During 2014-2016, QH’s operating margin is expected to remain stable. The debt to capitalization ratio is expected to stay below 60%, taking into account the company’s plans to launch new real estate development projects worth approximately Bt20 billion per annum.
QH’s liquidity profile remains acceptable. At the end of March 2014, QH’s long-term debts, mostly debentures maturing within the next 12 months, were around Bt3.6 billion. Most of the debts are expected to be refinanced with new debentures. QH’s liquidity sources include Bt1.8 billion in cash and Bt7 billion in undrawn long-term credit facilities as at the end of March 2014. Funds from operations (FFO) is expected to hold around Bt2 billion per annum. The company’s liquidity position is enhanced by its sizeable portfolio of marketable securities. The portfolio carried a fair value of Bt24.5 billion at the end of March 2014.
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