TRIS Rating Affirms Company & Current Issue Ratings and Assigns New Issue Rating Worth Up to Bt3,000 Million of “QH” at “A-/Negative”

TRIS Rating Co., Ltd. has affirmed the company and current senior debenture ratings of Quality Houses PLC (QH) at “A-”. At the same time, TRIS Rating has assigned a rating of “A-” to QH’s proposed issue of up to Bt3,000 million in senior debentures with “negative” outlook. The company will use proceeds from the new debentures to replace some short-term borrowings and for working capital. 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 the cyclical nature of the property development industry, expected rise in raw material and labor costs, and the relatively high level of financial leverage compared with industry peers. The “negative” outlook reflects an expected deterioration in QH’s credit profile in the aftermath of the flood crisis. The outlook could be revised back to “stable” should the company demonstrate an ability to adapt and generate growth while keeping its leverage level down. However, the ratings could be downgraded if QH requires longer time to restore its product competitiveness and financial strengths.

TRIS Rating reported that QH was established in 1983 by Land & Houses PLC (LH). The company 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.

In the aftermath of the flood crisis in late 2011, TRIS Rating believes that excess low-rise residential units in flooded areas, uncertain shifts in market behaviors, and flood-related costs pose challenges for QH in 2012 to adjust its business models and re-build consumer confidence. At the end of 2011, QH’s total value of non-transferred condominium projects was Bt10 billion. The condominium backlog was Bt3.3 billion, leaving the value of condominium projects available for sales at Bt6.7 billion. Most of QH’s high-rise projects will be ready to be transferred in 2013.

QH’s revenue for the first nine months of 2011 was under expectation. Full year revenue should have come at around Bt10 billion. QH’s performance is expected to recover slower than lesser-impacted industry peers due to a heavy exposure on low-rise segment and low high-rise backlog to be recognized in 2012. Its profit margin remains under pressure due to a constant growth in operating costs. At the end of September 2011, the debt to capitalization ratio stayed at 61.8%, up from 52.4% in 2010. TRIS Rating expects an extent of pressure on QH’s leverage to stay elevated in 2012 in order to support the company’s development costs for new projects. QH’s liquidity profile remained satisfactory, though weakened in recent quarters. The company’s liquidity is enhanced by its sizable holdings of marketable securities.

Due to the heavy flooding which started to hit Bangkok and vicinity in October 2011, the sale of residential properties is expected to slow down, especially for the heavy flooded zones. Several developers might have a negative growth in revenue or even net losses in the last quarter of 2011. The government’s tax incentive scheme and zero-rate mortgage financing plans may not have a significant effect on the demand for residential property in the coming quarters, due to the negative consumer sentiment. Global economic uncertainties, the threat of rising costs from the possible enactment of the minimum-wage hike, and elevated leverage levels of most property developers are key downside risks for the industry, said TRIS Rating. - End

Company Rating: Affirmed at A- Issue Ratings: 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- QH12DA: Bt1,300 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- QH152A: Bt1,600 million senior debentures due 2015 Affirmed at A- QH168A: Bt1,400 million senior debentures due 2016 Affirmed at A- Up to Bt3,000 million senior debentures due within 2016 A- Rating Outlook: Negative 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 2012, 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.