Bangkok--14 Feb--TRIS Rating
TRIS Rating Co., Ltd. has affirmed the company rating of Sansiri PLC (SIRI) at “BBB” with “stable” outlook. The rating reflects the company’s leading position in the condominium market, its well-accepted brand in the residential property market and the successful launches of its medium-priced condominium projects. The rating also takes into consideration SIRI’s aggressive business expansion and low operating profit margins. The cyclical downturn of the property development market due to the uncertain political situation and declining consumer confidence remains a concern.
The “stable” outlook reflects the expectation that SIRI will be able to manage the construction of its condominium projects in accordance with plans. The company is expected to expand less aggressively and focus more on controlling operating costs. The outlook may be changed to “positive”, if the company can double its capital as planned.
TRIS Rating reported that SIRI is one of the leading property developers in Thailand. As of September 2006, the company had 43 residential projects on hand with a total value of Bt43,547 million. Its residential property portfolio consists of single detached house (58%), condominium (30%), and townhouse (9%) projects. The average price for the overall portfolio was lowered to Bt5.6 million, reflecting a strategic shift towards the medium-priced segment. As of September 2006, the company’s total presales backlog was Bt15,000 million while the remaining value of the existing residential projects was Bt15,662 million. Single detached houses (SDH) constituted 82% of the remaining value while condominiums and townhouses accounted for 11% and 3%, respectively. SIRI’s main competitive edge stems from its well-accepted brand and strong marketing strategies.
TRIS Rating said, for the first nine months of 2006, SIRI’s residential sales performance was higher than industry peers due to the success of its new ‘Condo ONE’ brand and several new projects launched. Revenue from residential sales grew from Bt6,569 million in 2004 to Bt9,910 million in 2005, and continued to increase to Bt8,092 million for the first nine months of 2006, a 26% increase from Bt6,430 million during the same period of 2005. Though improving, the company’s profitability still lags behind its peers. Its gross margins of 25%-28% and adjusted operating margins of 10% during 2005-2006 reflected its difficulties in managing construction and overhead costs. With many but small project sites, the company has yet to benefit from economies of scale. More competition and more units on offer in a period of softer demand further pressures operators’ margins.
SIRI’s debt-to-capitalization ratio improved slightly from 50% as of December 2005 to 49% as of September 2006, after its condominium projects launched during 2003-2004 were gradually completed and transferred to customers. With its condominium backlog of Bt9,000 million as of September 2006, the new Condo ONE condominium projects will require at least Bt3,000 million funding during construction. SIRI has plans to double its capital to Bt12,608 million through a private placement to support expansion and keep leverage at a less intense level of one times.
TRIS Rating said about the political uncertainty following the bombings in Bangkok on 31 December 2006 that it has further deteriorated consumer confidence and softened the housing market. Though inflationary pressures and interest rates are easing, demand for residential property is expected to continue soft in 2007-2008.
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