Bangkok--18 Apr--TRIS Rating
TRIS Rating Co., Ltd. has upgraded the company rating of Preuksa Real Estate PLC (PS) and the ratings of its senior debentures (PS069A) and bills of exchange to “BBB+” from “BBB”. At the same time, TRIS Rating has also changed PS’s outlook to “positive” from “stable”. The upgrades are based on PS’s demonstrated ability to consistently provide better-than-expected operating performance and its improved financial position. The ratings also take into consideration the company’s proven record, its leading position as a developer of lower-priced residential property and its competitive cost structure. These strengths are partially offset by slowing demand for residential property, as a result of moderating consumer confidence, rising interest rates and rising construction costs.
The “positive” outlook reflects TRIS Rating’s expectation that PS will be able to maintain its strong position in the low-priced residential market. Its larger portfolio, mass production, and greater integration of its purchasing functions will alleviate the increasing pressure from rising interest rates and construction material costs, and should enable the company to maintain favorable margins. PS’s debt to capitalization ratio is expected to maintain at less than 50% in the medium term.
TRIS Rating reported that PS is one of the leading property developers in Thailand as demonstrated by its dominant position in the low-priced residential property market. The company primarily develops townhouse and single detached house (SDH) projects in the Bangkok Metropolitan Area (BMA). The prefabrication technique and large scale production have enabled PS to develop housing units at competitive prices that range from Bt0.6 million to Bt7 million per unit. PS was founded by Mr. Thongma Vijitpongpun in 1993 and then listed on the Stock Exchange of Thailand (SET) in December 2005. The company’s operating performance was impressive as revenue increased from Bt4,868 million in 2004 to Bt7,621 million in 2005. Operating profit dropped by 1% to 22% in 2005 while earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage remained strong at 11 times during recent years. PS’s financial position improved due to its sound operating performance and its proceeds generated from the initial public offering (IPO) of Bt1,885 million.
TRIS Rating said, competition in the housing market is expected to be moderate in 2006 as less housing units will be offered to the market while demand continues to stabilize. Increasing construction material costs, together with rising interest rates, will put more pressure on developers’ margins. The tighter lending policies adopted by commercial banks will likely limit developer expansion plans, while rising interest rates will likely soften the housing demand.
The current political situation may unfavorably affect the overall residential property market as some homebuyers are likely to delay decisions to buy new houses. However, the situation is expected to be resolved in the short term and the impact on the residential market should be temporary. After resolution, housing demand, especially for the middle- to low-income segment of the market, is expected to resume to normal, said TRIS Rating.