TRIS Rating Affirms Company Rating and Outlook of “PRIN” at “BBB-/Stable”

TRIS Rating has affirmed the company rating of PRIN at “BBB-” with “stable” outlook. The rating reflects PRIN’s acceptable track record in the low-rise residential property development segment, its evolving brand recognition in the condominium segment, and its moderate business risk profile. These strengths are partially offset by PRIN’s relatively small revenue base and a rising level of financial leverage. The rating also takes into consideration the cyclical and competitive nature of the property development industry, plus concerns over rising operating costs and the widespread labor shortage among contractors. The “stable” outlook reflects the expectation that PRIN will be able to improve its operating performance and successfully transfer completed housing units to customers as planned. The operating margin is not expected to fall below 10% during the next three years. In addition, the company’s debt to capitalization ratio should hold at around 55%. Any further deterioration in profitability, or a rise in financial leverage, will negatively impact the company’s rating or outlook.

PRIN is a medium-sized residential property developer in Thailand. The company was established in 2000 by the Kovitchindachai family and listed on the Stock Exchange of Thailand (SET) in 2005. The Kovitchindachai family continues to be the largest shareholder, with a combined 38% stake at the end of March 2013. PRIN offers a wide range of products, including single detached houses (SDH), townhouses, and condominiums. Its residential property projects focus on the middle-income segment in Greater Bangkok.

At the end of June 2013, PRIN had 24 projects available for sale. The value of the unsold units in its projects was around Bt3,700 million. The company had a total backlog of around Bt1,900 million. During 2012 through the first half of 2013, the sale of townhouse units remained the major source of revenue, constituting more than 58% of total revenue.

PRIN’s presales in 2012 rose sharply to Bt3,076 million, up 45% from Bt2,116 million in 2011. The growth in the presales came from townhouse presales, which accounted for 60% of total presales. However, presales in the first half of 2013 was Bt1,177 million, down 24% from the same period in 2012. The decrease was mainly due to the new launch of only one condominium project in the first half of 2013. Presales in the second half of 2013 are expected to improve, since the company plans to launch five projects with a total project value of approximately Bt4,800 million.

PRIN’s total revenue increased to Bt2,803 million in 2012 from Bt2,238 million in 2011. However, revenues in the first half of 2013 dropped to Bt1,109 million, down 23% from Bt1,434 million in the same period in 2012. The decrease in revenues in the first half of 2013 came mainly from the drop in the transfers of its low-rise units which were interrupted by the construction problem. Thus, the company had to delay the delivery of SDH and townhouse units in some projects for around six to twelve months. Currently, the company is focusing on the improvement of its construction process. PRIN’s total revenues in 2013 are expected to hold in a range of Bt2,300-Bt2,500 million. This range is lower than an earlier projection made by TRIS Rating.

PRIN’s gross profit margin of residential property sales stayed at a high level of around 36%-37% in 2011 and 2012. However, the gross profit margin in the first half of 2013 decreased to 33%. The operating margin, measured as operating income before depreciation and amortization as a percentage of sales, decreased to 10.65% in the first six months of 2013 from 15.88% in 2012. The operating margin fell because PRIN had a lower revenue base. As of June 2013, total debt increased to Bt3,661 million from Bt3,058 million in 2012. The lower operating performance and higher debt levels lowered PRIN’s cash flow protection in the first half of 2013. As a result, the funds from operations (FFO) to total debt ratio was 6.59% (annualized with trailing 12 months) at the end of June 2013, down from 11.89% in 2012. As of June 2013, the total debt to capitalization ratio rose to 49.45% from 44.82% as of December 2012. Under TRIS Rating’s base case scenario, PRIN’s total debt to capitalization ratio should not be higher than 55% in the next three years. According to its financial covenants, the company has to keep the debt to equity ratio below 2 times.

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