Bangkok--3 Nov--Fitch Ratings
Fitch Ratings has today affirmed Asian Property Development Public Company Limited’s (APD) National Long-term rating at ‘BBB(tha)’with a Stable Outlook and National Short-term rating at ‘F3(tha)’.
The ratings reflect APD’s strong brand recognition, expertise and solid market position in Bangkok’s inner-city townhouse segment, along with its strengthened position in the condominium segment. Although APD’s backlog declined to THB12.4bn at end-2008 from THB14.7bn at end-2007, it is expected to rebound to THB15bn by end-2009 following the successful launches of several condominium projects in H209. The company has been able to maintain EBITDAR margins, helped by a cut in special business tax and transfer fee from the government’s stimulus package for the real estate sector.
The ratings also take into account the planned land acquisitions and the construction of new projects in 2009/10, which could result in an increase in the company’s net debt over the next two years. However, APD’s focus on cash flow management, as well as its manageable debt and liquidity profile will partially mitigate these risks. Fitch expects APD’s financial leverage, measured by net adjusted debt to EBITDAR ratio, to stay in the range of 3x-4x during 2009-11. Meanwhile, Fitch expects APD’s EBITDAR margin to decrease modestly in 2010 due to an expected increase in SG&A (Selling, General and Administrative Expenses), following the termination of the special business tax and transfer fee reduction in March 2010.
APD’s net sales grew 26% yoy to THB9.8bn in 2008 and 34% to THB5.2bn in H109, thanks mainly to the transfer of condominium projects. Meanwhile, Fitch expects softer growth in revenue during 2010-2011 since fewer condominium projects were launched in H208 and H109, as compared with the number of projects launched in 2007 and higher revenue base in 2009. APD posted positive free cash flow (FCF) of THB0.33bn in H109. At end-H109, APD’s net debt decreased to THB5.9bn (end-2008: THB6.2bn) and its last-12-month net adjusted debt to EBITDAR was down to 2.1x (end-2008: 2.9x), as a result of the few number of project launches and land acquisitions during Q408-Q209. However, Fitch expects APD’s CFO (Cash Flow From Operation) and FCF to turn negative in the medium-term since the company has returned to expansion mode, which requires extensive amount of working capital to fund project construction and land acquisitions. Meanwhile, APD’s liquidity remains adequate, supported by its cash balance of THB789m and the outstanding undrawn committed bank facilities of THB8.6bn as at end-Q209.
APD’s credit ratings are constrained by the cyclical nature of the residential development business, the sector’s vulnerability to fluctuations in economic conditions and political uncertainties, and the fact that the majority of APD’s earnings are based on non-recurring revenue from property sales. Other key operational risks include an increase in land prices and intensified competition especially in the city condominium segment (though limited within a group of major developers), which could put pressure on the company’s operating margins.
The Stable Outlook reflects the likelihood that APD will be able to maintain its strong business profile and liquidity position consistent with the current credit metrics, despite its planned expansion and a continually challenging operating environment. Meanwhile, a sustainable growth in revenue and cash flow, together with a sustained improvement in its leverage to below 2.5x, could lead to a positive rating action. Conversely, a significantly weaker-than-expected operating performance and liquidity profile, as well as a material deterioration in the Thailand’s residential property market could impact the ratings negatively.
Contacts: Pimrumpai Panyarachun, Somruedee Chaiworarat, Vincent Milton, Bangkok, +662 655 4755.
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.
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