Bangkok--5 Nov--Fitch Ratings
Fitch Ratings has today upgraded Asian Property Development Public Company Limited’s (APD) National Long-term rating to ‘BBB+(tha)’ from ‘BBB(tha)’ and its National Short-term rating to ‘F2(tha)’ from ‘F3(tha)’. The Outlook is Stable.
The rating upgrades reflect APD’s better-than-expected operating performance in 2009 and its stronger-than-expected credit metrics at end-H110. APD’s ratings are also supported by its strong and sustained pre-sales in both low-rise and high-rise residential properties -- a result of the company’s strengthened market position and larger project portfolio. Although APD’s financial leverage is likely to increase in H210 to 2011 due to higher working capital requirements to fund the construction of condominiums, it should remain relatively low compared with its leverage during the expansion phase in 2006-2008 on the back of the company’s stronger earnings.
The agency also notes APD’s solid branding in townhouses and condominiums in the mid to upper-mid-tier segments, its sound financial management policy, and its strong track record in the property development business in Bangkok and its vicinities. APD’s continued access to the debt capital market and project financing also strengthen its financial flexibility.
APD’s EBITDAR grew 16% yoy to THB2.9bn in 2009 and 91% yoy to THB2.1bn in H110 driven by the economic recovery, the government’s stimulus package for the property market, as well as the company’s larger project portfolio. Financial leverage, as measured by net adjusted debt to EBITDAR, declined to 2.2x at end-2009 from 2.5x at end-2008 driven by strong cash flows from the transfer of ownership of completed condominiums in H209. Strong cash flow from operations also helped to lower its leverage further to 1.5x at end-H110.
The company has been able to maintain strong pre-sales in 2009 and H110 helped by increasing new project launches. Its average monthly presales increased to THB1.4bn in 2009 from THB622m in 2008. Although the average monthly pre-sales in H110 dropped slightly from 2009 due to a fewer number of condominium launches, Fitch expects the average monthly pre-sales in 2010 to be close to the figure in 2009 supported by a large number of new condominium launches in H210. This should help to increase APD’s pre-sale backlog (value of pre-sold properties yet to be booked as revenue) to about THB20.0bn at end-2010.
APD’s ratings are constrained by the cyclical nature of the property development business which could lead to cash flow fluctuations resulting from volatile working capital. Moreover, almost all of APD’s cash flow generated from operations is project-based cash flow. This makes its credit profile riskier compared to companies (with comparable credit metrics) in other businesses with more stable revenue streams, which would prove to be more resilient to an economic downturn.
The Stable Outlook reflects the likelihood that APD will be able to maintain its strong business profile and liquidity position consistent with the current credit metrics in the next 24 months. A further upward movement on the ratings may be limited by the increasing working capital needs for the construction of its pre-sold condominiums as well as land acquisitions in the next two years. On the other hand, negative rating pressure could come from aggressive expansion which includes significantly higher-than-expected land acquisitions, much lower-than-expected presales, high cancellation rates, as well as a significant drop in operating margins.
Contacts:
Primary Analyst
Pimrumpai Panyarachun
Associate Director
+66 2655 4752
Fitch Ratings (Thailand) Limited
Wave Place 13th Fl., Wireless Road, Lumpini, Patumwan,
Bangkok 10330, Thailand
Secondary Analyst
Somruedee Chaiworarat
Associate Director
+66 2655 4762
Committee Chairperson
Kalai Pillay
Senior Director
+65 6796 7221