Bangkok--22 Feb--TRIS Rating
TRIS Rating Co., Ltd. has affirmed the company rating of TICON Industrial Connection PLC (TICON) at “A” and has affirmed the ratings of TICON’s senior debentures (TCON095A, TCON095B) at “A-” with “stable” outlook. The ratings reflect TICON’s leading position and proven record in the ready-built factory business, its predictable rental income, and good operating performance. A current slowdown of Thai economy, declining investment confidence, and political uncertainty are concerns.
The “stable” outlook is based on the expectation that TICON will be able to maintain its leadership position in the niche market of rental factories. The company’s rental income is expected to gradually increase, providing more cushion for its new rental logistics facility. TICON’s debt to capitalization ratio is expected to be in the 60%-65% range during the construction of the logistics park before improving to 50%-55%.
TRIS Rating reported that TICON is Thailand’s leading ready-built factory provider. At the end of September 2006, the company’s portfolio comprised 148 leased factories located in 11 industrial estates, with aggregate area of 347,518 square meters. As of January 2007, TICON’s major shareholders were Rojana Industrial Park PLC (16.3%); Fidelity Group (9.3%); Capital Group (8.5%); Mr. Wei Cheng Kuan, the company’s president (7.9%); City Realty Group (6.6%); and Thailand Equity Fund (6.1%). TICON's competitive advantages stem from its 17-year record in the ready-built factory business, its ability to provide standard factories at competitive prices, cost advantages from economies of scale, and a strategy of managing its own factory construction.
TRIS Rating said, during the first nine months of 2006, TICON was able to lease factories to its new 56 customers, compared with 51 and 56 new customers for 2004 and 2005, respectively. According to CB Richard Ellis (CBRE), based on leased space, TICON and TICON Property Fund (TFUND) had a combined market share of 70% as of September 2006, far higher than its peers, Thai Factory Development PLC (10%), Hemaraj Land and Development PLC (10%), and Pinthong Industrial Park
Co., Ltd. (9%). TICON’s rental revenue from leased factories is highly predictable due to the three-year lease contract structure. During the first nine months of 2006, the company generated rental revenue of Bt465 million and another Bt1,982 million from factory sales to TFUND, while its net income from operations reached Bt1,007 million. TICON’s debt to capitalization ratio of 64% as of September 2006 is expected to improve to 50%-55% following the company’s successful capital increase of approximately Bt2,000 million in November 2006. The equity proceeds will be used to repay existing debt and fund the company’s capital expenditures.
Though the political uncertainty in 2006-2007 has adversely affected the overall industrial property sector, the ready-built factory market has been less affected since, during a period of declining confidence, many manufacturers prefer renting to owning their factories. The government’s recently-announced 30% reserve requirement on capital inflows and the proposed Foreign Business Act amendments have created regulatory risks and an unfavorable investment climate for foreign investors. However, the capital controls are expected to be relaxed within a short period. For the medium to long term, prospects for the overall industrial property sector in Thailand will remain good, due to the country’s attractive foreign investment and international trade promotion policies, said TRIS Rating.
TICON Industrial Connection PLC (TICON)
Company Rating: Affirmed at A
Issue Ratings:
TCON095A: Bt500 million senior debentures due 2009 Affirmed at A-
TCON095B: Bt1,000 million senior debentures due 2009 Affirmed at A-
Rating Outlook: Stable