Bangkok--6 Jun--Fitch Ratings
Fitch Ratings (Thailand) Limited has affirmed AP (Thailand) Public Company Limited's (AP) National Long-Term Rating at 'BBB+(tha)', and its National Short-Term Rating at 'F2(tha)'. The Outlook is Stable. Simultaneously, the agency has withdrawn AP's ratings for commercial reasons.
Key Rating Drivers
Stable Revenue: Fitch expects AP's revenue to remain at about THB22bn in 2016-2017, given its slower pace of condominium presales over the last two years. Low-rise projects, single-detached houses (SDH) and townhouses are likely to be key drivers of revenue over the next two years. Thailand's property market is likely to remain challenging in 2016 as demand remains weak, particularly demand in the low- to middle-end condominium segment, and high market inventory.
AP's condominium revenue has weakened partly because the revenue of joint-venture projects, in which AP holds 51% and Mitsubishi Estate Group holds 49%, will not be recognised as AP's revenue. These JVs, which achieved high presales, accounted for 85% of new condominiums launched in 2014-2015. Fitch also considers the scenario that includes the JVs' operating performance on a proportionate basis. In this case, AP's revenue should grow at a mid single-digit pace in 2016 as the first three JV projects will start to contribute to revenue in 2H16. The JV projects are likely to be key growth drivers for AP's high-rise segment in 2016-2018.
Margins to be Maintained: Fitch expects AP to be able to maintain the gross margin for property sales at about 32%-33% and EBITDA margin at about 15%-16% over the next three years. AP's EBITDA margin has improved since 2014, although it remains at the lower end of range of leading peers (13%-24% in 2015).
Deleveraging in 2018: AP's net debt to inventory is likely to remain high at 45%-46% in 2016-2017, but Fitch expects it to come down to about 40% in 2018, supported by cash received from the JVs. Leverage in 2016-2017 will be driven by land acquisition costs and cash injections for JV projects, but it should reduce as revenue from the JV projects are recognised and paid to AP in 2018.
Leading Market Position: AP is the fourth-largest residential property developer in Thailand by 2015 revenue. Its well-diversified portfolio in terms of property type, location, and customer base should support the company's revenue growth and help reduce the volatility of its cash flow. Fitch expects AP to maintain its strong market position – especially in the middle-income and upper middle-income townhouse and condominium segment – over the next five years.
Volatile Cash Flow: Almost all of AP's earnings are generated from property development activities, resulting in more volatile and less predictable operating cash flow. The company is exposed to the cyclical nature of the property market, intense competition, and a rising supply of condominiums in and around Bangkok.
Rating Sensitivities
Not applicable