TRIS Rating has assigned the rating of “A” to the proposed issue of up to Bt2,200 million in senior unsecured debentures of Supalai PLC (SPALI). At the same time, TRIS Rating has affirmed the company and current senior unsecured debenture ratings of SPALI at “A”. The outlook remains “stable”. The proceeds from the new debentures will be used for debt repayment and for business expansion. The ratings reflect the company’s improving operating performance, in line with expectations, and the expected growth in its revenue base. In addition, the ratings take into consideration SPALI’s proven track record in the residential property development industry in Thailand, accepted brand name in the middle-income segment, and strong financial position. These strengths are partly offset by the cyclical and competitive nature of the property development industry, plus concerns over rising operating costs and the widespread labor shortage among contractors. The “stable” outlook reflects the expectation that SPALI can maintain its sound operating performance and strong financial position. Its revenue is expected to be in the range of Bt16,000-Bt20,000 million over the next few years. The interest bearing debt to equity ratio should remain less than 1 time or the total debt to capitalization ratio less than 50%. However, any significant delays in the cash inflows from its projects, or any weakening of its financial profile, could cause its ratings or outlook to be revised downward.
Established by the Tangmatitham family in 1989, SPALI is one of Thailand’s leading property developers. As of June 2014, the Tangmatitham family, the largest shareholder, held a 28% stake in SPALI. At the end of June 2014, SPALI had 86 residential property projects. The units available for sale in these project carried a total value of around Bt27,000 million. The company had a huge backlog, worth approximately Bt40,000 million or around 3 times its current annual revenue. SPALI’s residential project portfolio comprises condominium projects (57%) and housing projects (43%). The company’s competitive edge is derived from its ability to control operating costs, and thus offer competitively-priced residential units to homebuyers.
SPALI’s presales were Bt18,900 million in 2013, down 16% from Bt22,442 million in 2012. The drop in presales mainly came from the condominium segment. Condominium presales decreased by 30% year-on-year (y-o-y) to Bt11,947 million in 2013. Presales from housing projects were Bt6,953 million in 2013, up by 30% from Bt5,320 million in 2012. Presales during the first half of 2014 slightly increased by 4% y-o-y to Bt8,085 million. The increase in presale mainly came from low-rise housing unit.
SPALI reported revenue of Bt12,615 million in 2013, up by 10% y-o-y. Revenue from condominium projects declined slightly, falling by 2% y-o-y to Bt5,590 million in 2013. Housing projects generated revenue of Bt6,732 million in 2013, up by 21% from Bt5,564 million in 2012. During the first half of 2014, SPALI’s revenue increased by 47% y-o-y to Bt5,842 million. Revenue from condominium projects grew by 170% y-o-y and revenue from housing projects rose by 16% y-o-y. It’s revenue during the second half of 2014 through 2017 is partly secured by the units in backlog worth Bt12,248 million in 2014, Bt15,458 million in 2015, and over Bt10,000 million during 2016-2017. Thus, its revenue is expected to increase to around Bt16,000-Bt20,000 million over the next three years.
SPALI’s financial position has been strong. Its profit margin has remained higher than most property developers listed on the Stock Exchange of Thailand (SET). Operating income as a percentage of sales ranged from 30% to 33% during 2011 through the first half of 2014. In the first half of 2014, SPALI’s total debt to capitalization ratio increased to 45.82% from 36.24% at the end of 2013. However, its leverage is expected to decline due to the transfer of condominium units in the second half of 2014. The ratio of interest bearing debt to equity was around 0.5 times from 2009 through 2013. In the first half of 2014, the ratio of interest bearing debt to equity increased to 0.9 times. The ratios of funds from operations (FFO) to total debt fluctuated between 50% and 54% during 2010-2012. This level is considered high for the property development industry. The ratio declined to around 28% (annualized) in the first half of 2014, since SPALI took on more debt.
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