Bangkok--24 Oct--Fitch Rating
Fitch Rating (Thailand) Limited has affirmed Asian Property Development Public Company Limited's (APD) National ratings at Long-Term 'BBB+(tha)' and Short-Term 'F2(tha)'. The Outlook is Stable.
The ratings reflect APD's strong foothold in the condominium and townhouse market in Bangkok and nearby cities. Its established brand and development track record, particularly in mid-tier to upper mid-tier properties, have helped maintain both healthy presales averaging THB15bn per year and reasonable profit margins of 19% to 24% during the past five years. A well-diversified portfolio by property type and locations also helped mitigate the adverse impact from the major floods in Thailand in 2011.
Fitch expects healthy presales in 2012, based on recovery of the market for low-rise properties and expected strong take-up rate of APD's six new condominiums. Presales of APD's low-rise properties have recovered quicker than its peers given that only few of its projects are in areas affected by the floods. APD's presales grew 41% in H112 from the same period last year.
APD's net debt to inventory should gradually improve in the next 12-18 months, due to slower land acquisition in 2012, healthy low-rise property sales and on-schedule ownership transfer of condominium projects. Fitch expects APD's leverage, defined as net debt to inventory to ease to 50% - a rating trigger threshold - at end-2012 (end-2011: 51%) and drop below this level in 2013.
The agency expects higher labor and building material costs to temper APD's profitability and to remain a feature for at least the remainder of 2012. APD's gross margin dropped to 34% in H112 from 38% in 2011. Escalating land prices in inner Bangkok are also putting pressure on APD's profitability, particularly on its new condominium projects for 2012 and 2013.
APD's ratings are constrained by the inherent volatility from property development activities, where there is limited earnings visibility. This means the company is dependent on presales to meet its financial obligations and is exposed to a weakening property market. Other operating risks include floods, increasing supply of condominiums, as well as intense competition.
What Could Trigger A Rating Action?
Negative: Future developments that may, individually or collectively, lead to negative rating action include
- A significant drop in presales or new project launches on a sustained basis
- A sustained deterioration in funds from operations interest coverage below 3.5x (end-2011: 3.05x) or sustained increase in financial leverage, as measured by net debt to inventory, over 50%
Positive: No positive rating action is expected over the next 12-18 months due to its current high financial leverage.