TRIS Rating has assigned the rating of “BBB-” to the proposed issue of up to Bt1,500 million in senior unsecured debentures of Noble Development PLC (NOBLE). At the same time, TRIS Rating has affirmed the company rating of NOBLE at “BBB” and has affirmed the ratings of its existing senior unsecured debentures at “BBB-”. The outlook remains “stable”. The proceeds from the new debentures will be used to repay debentures maturing in August 2015.
The ratings reflect the company’s brand name, which has been well accepted in the middle- to high-end segment of the residential property market, and its product differentiation strategy. These strengths are partially offset by NOBLE’s business concentration risk from its huge investment in the Noble Ploenchit condominium project with project value of Bt18,000 million and its relatively high financial leverage. The ratings are also constrained by 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 which may lead to low purchasing power and stagnant demand in residential property development.
The “stable” outlook reflects the expectation that NOBLE will launch and deliver its projects as planned. NOBLE’s financial leverage is expected to rise during 2015-2016. TRIS Rating expects the company to improve its financial leverage to comply with the covenant after a transfer of backlog units in Noble Ploenchit. The ratings and/or outlook could be downgraded if the company cannot manage its liquidity as planned. NOBLE’s credit upside is limited during the next two years.
NOBLE is a medium-sized property developer in Thailand. The company was established in 1991 and listed on the Stock Exchange of Thailand (SET) in 1996. NOBLE’s offers unique designs for every one of its product types. The unique designs differentiate its products from other developers’ projects. The company has focused on developing condominium projects since 2006, as customer preferences have shifted to an urban living style. At the end of March 2015, NOBLE had 18 existing projects available for sale. Its residential project portfolio comprises condominium (87% of total project value), single detached houses (SDHs, 6%), townhouses (5%), and plots of raw land (2%). The value of the remaining unsold units (including built and un-built units) across NOBLE’s project portfolio was around Bt13,000 million. The total backlog was valued at Bt19,000 million. Around half of backlog came from Noble Ploenchit, which is scheduled to complete in late 2016.
NOBLE’s presales in 2014 was Bt5,398 million, a 24% year-on-year (y-o-y) drop. Presales during the first quarter of 2015 sharply increased to Bt535 million. Total revenue in 2014 decreased by 26% y-o-y to Bt2,276 million as fewer residential units were transferred to customers. Revenue in the first three months of 2015 was Bt65 million, significantly decreasing from Bt722 million in the same period of 2014. Over 95% of NOBLE’s units available for sale, valued at around Bt13,000 million, will be completed and ready to transfer to customers after 2015. The company plans to launch a new low-rise housing project, “GABLE”, valued at Bt2,000 million, in 2015. The project offers ready-built housing units. As a result, revenue from this housing project will be the main revenue contributor in 2015. NOBLE’s revenue in 2015 is expected to be lower than Bt1,000 million since most of the units in its backlog will be completed and transferred since 2016 onwards. However, NOBLE’s cashflow remains acceptable, as it keeps receiving customer down payments.
NOBLE’s gross profit margin has remained high, ranging from 38%-43% of total revenue during 2008 through the first quarter of 2015. The operating margin, measured by operating income before depreciation and amortization as a percentage of sales, declined to 14% in 2014 and -152% during the first three months of 2015 from 18%-21% during 2011-2013. A drop in operating profit margin was due mainly to lower revenue and high selling, general and administration (SG&A) expenses.
Total debt was Bt12,375 million as of March 2015, up from Bt11,417 million in 2014 and Bt9,796 million in 2013. At the end of March 2015, the total debt to capitalization ratio was relatively high at 75%. The net interest-bearing debt to equity ratio was 2.29 times, exceeding the limit of bond covenants at 2.2 times. NOBLE’s financial leverage is expected to rise during 2015-2016 as it is building several condominium projects. However, the company received an approval from its bondholders to relax the financial covenant during 2015-2016.
Due to higher financial leverage, NOBLE’s funds from operations (FFO) to total debt ratio decreased continuously. The ratio was 1.67% in 2014 and -0.62% (annualized with trailing 12 months) during the first three months of 2015, down from 3.97% in 2013 and 5.4% in 2012. However, NOBLE’s liquidity is still acceptable. It has enough source of liquidity, including Bt2,832 million in cash on hand and Bt7,418 million in undrawn project loans as of March 2015, and it receives around Bt1,200 million per annum in cash from customer down payments. NOBLE has around Bt2,100 million in debt due in the next 12 months.
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