TRIS Rating Affirms Company & Issue Ratings of “QH” at “A-” with “Stable” Outlook

TRIS Rating Co., Ltd. has affirmed the company and issue ratings of Quality Houses PLC (QH) at

“A-” with “stable” outlook. The ratings reflect the company’s established track record in the property development industry, strong position in the middle- to high-income housing market and diverse revenue sources with recurring income from commercial properties and investment portfolio. The ratings also take into consideration the company’s financial flexibility from strategic investments in associated companies. The strengths are partially offset by political instability, the cyclical nature of the property development industry, and the relatively high level of financial leverage compared with industry peers.

The “stable” outlook reflects an expectation that QH will sustain its leading market share in the high-end segment and balance its product mix to capture dynamic changes in housing demand. Should QH’s debt to capitalization ratio stay above 55% for a sustained period, the company’s financial profile will fall below its current rating category. This will likely exert a downward pressure on the company’s credit ratings.

TRIS Rating reported that QH was established in 1983 by Land & Houses PLC (LH) and is one of the leading property developers in Thailand. As of June 2011, QH’s major shareholders were LH (25%) and the Government of Singapore Investment Corporation Pte. Ltd. (11%). QH has a strong market position, particularly in the mid- to high-end single-detached house (SDH) segments. The company’s management team has consistently demonstrated high competency in developing competitive housing products under various pricing segments and product platforms.

During 2010-2011, QH has adopted new strategies in three key areas. First, the company began penetrating lower-priced housing segment by introducing “The Trust” brand, which offers residential property pricing between Bt1-Bt3 million. Second, QH began using presale strategy for all projects under Casa and The Trust brands. The presale strategy is also used for all condominium projects. Third, QH started using pre-cast and tunnel construction methods for its low-rise products pricing between Bt1-Bt5 million. TRIS Rating believes that it should require some times for QH to strongly establish its market presence in the lower-priced segment. Nonetheless, in the short run, QH’s new venture should generate a respectable performance and grow in line with the market.

QH plans to spend around Bt4 billion per annum in land acquisition for the next 1-2 years. This is in line with an expectation that growth in the residential property industry will be normalized from 2011. At the end of March 2011, QH had 6,289 units (including built and un-built) remaining in existing projects. The remaining units were worth approximately Bt32,480 million.

TRIS Rating said, QH’s revenue in 2011-2012 is expected to be driven largely by SDH segment. The company’s strong business profile is expected to support its revenue base to stay above Bt10 billion in 2011-2012. QH’s revenue is expected to jump in 2013 from the transfers of high-rise projects. Operating margin should remain close to the 2010 level in the next 1-2 years. As QH plans to capture more shares in the condominium segment, greater financial prudent is required to support greater variability in future cash flows.

At the end of March 2011, the debt to capitalization ratio stayed at 57%, up from 52.4% in 2010 and 51.1% in 2009. TRIS Rating expects an extent of pressure on QH’s leverage to stay elevated during 2011-2012 in order to support the company’s development costs for new projects. QH’s liquidity profile remained satisfactory, though weakened in the first quarter of 2011. The company’s liquidity measures should improve gradually in the remaining quarters of 2011, driven by sales in existing and new low-rise projects. QH’s liquidity is also enhanced by its sizable holdings of marketable securities.

TRIS Rating also said that demand for housing depends mostly on consumer confidence and the economic environment. The government usually provides supports for this industry during an economic downturn. Due to the government tax incentives scheme offered during 2008-2010 and the faster-than-expected economic recovery, demand for residential property has improved significantly since the second half of 2009. The momentum had sustained throughout 2010. Several developers had stepped up land acquisitions since late 2009, pushing up the industry-wide leverage level significantly in 2010. The changes in the loan-to-value policy (LTV ratio) implemented by the Bank of Thailand (BOT) in 2011 and rising interest rates are expected to curb speculative demand in the condominium segment and reduce affordability of housing for the low-income segment. Therefore, the growth rate of this industry is

expected to be lower this year compared with the previous year. Large developers are expected to gain more market share at the expense of smaller developers. Several major developers have diversified by entering the low-priced housing segment. This move will cause competition in this segment to be more intense than before. -- End

Company Rating: Affirmed at A- Issue Ratings: QH11OA: Bt1,200 million senior debentures due 2011 Affirmed at A- QH123A: Bt600 million senior debentures due 2012 Affirmed at A- QH123B: Bt1,300 million senior debentures due 2012 Affirmed at A- QH127A: Bt1,500 million senior debentures due 2012 Affirmed at A- QH127B: Bt1,000 million senior debentures due 2012 Affirmed at A- QH135A: Bt1,000 million senior debentures due 2013 Affirmed at A- QH136A: Bt1,000 million senior debentures due 2013 Affirmed at A- QH143A: Bt2,000 million senior debentures due 2014 Affirmed at A- QH144A: Bt2,000 million senior debentures due 2014 Affirmed at A- Rating Outlook: Stable TRIS Rating Co., Ltd./www.trisrating.com Contact: [email protected], Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand 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.