TRIS Rating Affirms Company Rating of “Syntec” at “BBB-”, with “Stable” Outlook

TRIS Rating Co., Ltd. has affirmed the company rating of Syntec Construction PLC (Syntec) at “BBB-” with “stable” outlook. The rating reflects the company’s position as a market leader in high-rise building construction, effective cost control, and strong balance sheet. These strengths are partially offset by the cyclical nature of the engineering and construction (E&C) industry, intense competition, relatively low business diversity, exposure to customer credit risk, and the vulnerability of earnings to rising raw materials prices since most of its projects are under fixed-price contracts.

The “stable” outlook reflects the expectation that Syntec will sustain its competitive position in the private construction segment. TRIS Rating also expects that the company will maintain its core competency of effective cost control and a strong balance sheet.

TRIS rating reported that Syntec was established in 1988 and now is a medium-sized general contractor, specializing in high-rise building construction. Most of Syntec’s clients are in the private sector, covering a range of industries such as residential and retail property development, hotel, and manufacturing. Profitability in the private construction sector is usually higher than in the public sector. However, private sector projects are more sensitive to economic conditions. Thus, the company is more exposed to a decline in construction demand during an economic downturn. Syntec is also exposed to customer credit risk. The ability to screen and maintain customers with good credit quality is one of its key success factors. During the past few years, Syntec has built a reputation for construction quality and reliability, leading to several repeat customers such as Supalai PLC, Major Development PLC, and the Bangkok Hospital Group. As with other E&C companies in Thailand, the company is exposed to the volatility of raw materials prices since most of its contracts are fixed-price contracts. The company tries to mitigate this risk by locking raw materials prices whenever possible and reducing unnecessary waste. The company closely monitors construction progress which helps reduce the likelihood of a huge unexpected loss at the end of each project. As of December 2010, the company had 29 projects on hand. The backlog stood at Bt5,791 million, up 17% from Bt4,956 million at the end of 2009. The current backlog was equivalent to 1.2 times its revenue in 2010.

TRIS Rating said, Syntec’s operating performance in 2010 was weaker than expected. Construction revenue declined by 19% year-on-year (y-o-y) to Bt5,003 million. Revenue fell because Syntec received very few new orders in the first half of 2009. The gross margin dropped to 6.06% compared with 11.2% in 2009. The drop was mainly due to cost overruns in some projects and higher administrative costs from project delays as a result of political unrest in April and May 2010. In addition, losses on the Baan Aue-Arthorn projects were larger than previously estimated. Because of these difficulties, net profit dropped to Bt203 million in 2010. Nonetheless, Syntec’s solid operating cash flow over the past few years has helped the company maintain a strong balance sheet and adequate cash balances. As of December 2010, total debt was Bt684 million, down from Bt762 million in 2009. The cash balance stood at Bt556 million in December 2010, or 81% of outstanding debts. The total debt to capitalization ratio improved from 32.29% in 2008 to 22.73% as of December 2010. Although the funds from operations (FFO) to total debt ratio weakened to 15.26%, the drop is expected to be temporary and the ratio should recover to its historical level of more than 30% next year. - End

Company Rating: Affirmed at BBB- Rating Outlook: Stable Copyright 2011, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.