Bangkok--Mar 7--Fitch Ratings
Fitch Ratings (Thailand) Limited has today revised the rating Outlook on Thailand-based Property Perfect Public Company Limited (“PF”) to Negative from Stable. At the same time, Fitch has affirmed the ‘BBB(tha)’ National Long-term ratings on the three tranches of PF’s 1.5-year, 2.0-year and 2.5-year secured debentures totaling THB1.55 billion, maturing February 2006, August 2006 and February 2007, respectively.
The revision in the rating Outlook to Negative is based on PF’s worse-than-expected 2004 earnings performance and higher-than-expected financial leverage, which has lowered PF’s financial flexibility. While PF’s single-detached housing (SDH) sales increased 10% yoy to THB4.1 billion in 2004, this was significantly below the company’s projections of 40% due partly to a delay of new projects, most of which were launched in H204 and an industry-wide slowdown. PF’s EBITDA declined to THB775 million in 2004, while its EBITDA margins dropped to 19% from 23% in 2003, due to the 4.3% rise in business tax and transfer fee after the cessation of government’s incentive programmes, as well as increases in marketing, advertising and human resources spending in light of intensified competition. With its increased project expansion in H204, an increase in its stake in Estate Perfect, its participation in Krungthep Land’s capital increase, as well as its large land acquisition for future project development, PF’s net debt increased to THB6.4bn, equaling to 8.2x of its 2004 EBITDA (at end-2003, it was 4.4x EBITDA). Given the non-recurring nature of residential development earnings, PF’s high financial leverage could limit its financial flexibility, although its undrawn committed bank facilities of THB2.6bn at end-Feb 2005 should provide some funding flexibility for the short-term.
PF expects strong improvement in its earnings performance in 2005, driven by a substantial increase in earnings from projects launched in 2004 and seven new projects in 2005 (valued at THB10.3bn). However, Fitch believes that there is potential for some future earnings volatility given the intense competition in Bangkok’s SDH market and the prospect of rising interest rates, a slowdown in inventory turnover, as well as rising land and construction costs. In light of its expansion, Fitch expects PF to manage liquidity through conservative housing stock, while its new land acquisition costs should fall.
PF’s board last week proposed a 30% dividend payout from its 2004 earnings, totaling THB313m. If the proposed dividend payout is approved by shareholders, this could place additional financial burden on the company given the already high leverage and may negatively affect its ratings. On the other hand, the realisation of strong cash flows from existing projects and a more moderate level of financial leverage in 2005 than currently is anticipated by Fitch would serve to stabilise PF’s credit profile.
Established in 1985, PF has developed into one of Thailand’s major property developers, focusing on large-scale pre-built SDH developments in Bangkok suburbs. PF’s creditors currently hold about 90% of the company’s stock due to its restructuring following the 1997 financial crisis. Listed on the Stock Exchange of Thailand in 1992, PF’s market capitalisation was THB5.4bn at end-February 2005.
A full rating report on Property Perfect Plc. is available on the agency’s subscriber website at www.fitchratings.com
Contact:
Wasant Polcharoen, Bangkok,
Tel: +662 655 4763,
Lertchai Kochareonrattanakul,
+662 655 4761,
Vincent Milton,
+662 655 4759.
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(tha)’ for National ratings in Thailand. Specific letter grades are not therefore internationally comparable. End.