Bangkok--12 Mar--TRIS Rating
TRIS Rating has affirmed the company rating of Pre-Built PLC (PREB) at “BBB-” with “stable” outlook. The rating reflects the company’s acceptable track record in building high-rise construction projects, its sizable backlog, and its relatively good profit margin. These strengths are partially offset by the cyclicality of the engineering and construction (E&C) industry, overreliance on the few end-markets the company now serves, a short track record as a property developer, and a potential rise in financial leverage. The “stable” outlook reflects the expectation that PREB will maintain its competitive edge in its core business. Leverage is expected to rise, but it should stay under control, despite PREB’s plan to develop more condominium projects over the next three years. The rating and/or outlook could be upgraded, should PREB’s revenue and profitability improve as planned and if the debt to capitalization ratio does not rise above 50%. In contrast, the rating and/or outlook could be revised downward, should its financial profile drop significantly due to an over-investment in the property development segment or sharp drops in sales or profitability.
PREB was founded in 1995 and listed on the Stock Exchange of Thailand (SET) in 2005. As of May 2014, PREB’s major shareholder was the Charoentra family, holding 26% of the shares outstanding. The company is a general contractor focusing on high-rise buildings in the private sector. PREB’s revenue averaged Bt2,585 million per year during 2008 through 2012. Since 2013, its total revenue has increased above Bt6,000 million a year. Revenue from the construction segment accounted for 80%-90% of total revenues during each of the past five years. The revenue contributions from the sale of construction materials and from property development remain small, but have gradually increased over the past few years. Since 2010, the company has completed four condominium projects.
PREB’s moderate business profile reflects its acceptable record of undertaking residential and commercial high-rise building projects. Most of the company’s clients are property developers listed on the SET. These customers have acceptable credit profiles. During 2012-2014, PREB’s biggest clients have been a group of subsidiaries of Quality Houses PLC (QH) and a group of foundations related with Wat Pra Dhammakaya. Each group contributed around 20%-30% of PREB’s total revenue each year. As of the end 2014, PREB’s backlog stood at Bt8.8 billion.
PREB’s financial profile is acceptable. Since 2010, the company’s gross profit margin has ranged from 10% to 12%. The gross profit margin in the construction segment was around 8%, but the gross profit margin in the property development segment averaged 43%. The higher gross profit margin in the property development segment helped enhance the overall gross profit margin of the company. PREB’s operating margin has been steady at 5%-7%. The debt to capitalization ratio was around 9% during 2012-2013. The ratio rose to around 28% at the end of 2014 due to PREB’s investment in its largest condominium project, TEMPO Grand Sathorn-Wuttakard.
TRIS Rating expects PREB’s total revenue to be around Bt6 billion in 2015. During 2016-2017, PREB’s total revenue is expected to increase to around Bt7-Bt8 billion each year. The growth in revenues will be mainly come from the transfer of the finished units in the TEMPO Grand Sathorn Wuttakard project. PREB’s operating margin is expected to rise from 5%-6% to around 10% during 2016-2017. Funds from operations (FFO) are also expected to increase, climbing from Bt200-Bt300 million yearly in 2014-2015 to around Bt500 million per annum during 2016-20117. Due to the expansion into the property development segment, the company’s financial leverage is expected to rise. However, the company is expected to keep its debt to capitalization ratio below 60% over the next three years. Cash flow protection, as measured by the FFO to total debt ratio and the EBITDA (earnings before interest, taxes, depreciation, and amortization) interest coverage ratio, are expected to be weaker. PREB’s leverage is expected to rise faster than its earnings. During 2015-2017, the FFO to total debt ratio will average around 20%, while the EBITDA interest coverage will be around 5 times.
Pre-Built PLC (PREB)
Company Rating: BBB-
Rating Outlook: Stable