TRIS Rating Assigns Company Rating of “NWR” at “BBB-" with "Stable” Outlook

TRIS Rating has assigned the company rating of Nawarat Patanakarn PLC (NWR) at “BBB-” with “stable” outlook. The rating reflects the company’s acceptable track records in undertaking both public and private construction projects and moderate backlog size. The strengths are partially offset by the cyclical nature of the engineering and construction (E&C) industry, moderate fluctuation in operating performance, and execution risks from property development projects. The “stable” outlook reflects the expectation that NWR’s will continue to maintain its competitiveness in civil works, both public and private projects. The debt to capitalization ratio is expected to stay below 50%, or the interest-bearing debt to equity ratio below 1 time during 2014-2016.

NWR was founded in 1976 and listed on the Stock Exchange of Thailand (SET) in 1995. As of December 2013, NWR’s major shareholder was Mr. Polpat Karnasuta, holding about 10% of the total shares. NWR is a general contractor, focusing on civil works for buildings, transportation infrastructure, ports, irrigation works, tunnelling and pipe jacking projects.

NWR’s moderate business risk profile reflects acceptable track record in project executions and completions. During 2008-2013, revenue from private projects comprised 60% of total revenues; while public projects comprised 40%. During 2008-2011, NWR’s average revenue was Bt3,300-Bt4,100 million per annum. While during 2012-2013, revenue increased to Bt6,704 million, and Bt6,727 million, respectively, due to higher revenue for civil works in power plant projects. NWR’s average gross profit margin was 8% during 2008-2013. The company’s backlog for the past four years has ranged from Bt12,000 to Bt15,000 million per annum, a jump from Bt7,500 million in 2008 after the procurement of the coal excavation project at Mae Moh mine, valued at Bt8,878 million in 2009. At the end of December 2013, NWR’s backlog stood at Bt12,826 million. The worth of NWR’s top five backlog projects are Bt11,159 million, accounting for 87% of the total backlog. The current backlog should secure revenue in a range of Bt2,200-Bt4,500 million per annum during 2014-2016, accounting for 45% of TRIS Rating’s base-case revenue.

NWR’s rating reflects the company’s short record in developing residential property projects. NWR invested 40% in a joint venture with Charn Issara Development PLC (CI) to develop “The Issara Ladprao” condominium project, worth Bt1,867 million in 2006 and the "ISSI Condominium Suksawat", worth Bt2,000 million in 2013. In addition, NWR invested 25% in a joint venture with VSPN Property Co., Ltd. to develop “Seabreeze Villa Pattaya” project, worth Bt500 million in 2007. During 2012-2015, the company plans to develop and construct at least three single-detached houses (SDH) projects, under “Baranee” brand. The combined value of three projects are around Bt2,200 million.

NWR’s average operating margin (operating profit before depreciation and amortization as a percentage of revenue) was around 6%-8% during 2009-2013, which was relatively in line with SET-listed peers with similar business size. NWR’s debt to capitalization ratio was around 51%-58% during 2009-2012, but decreased to 44% after the company received Bt1,160 million from the right offering in 2013.

During 2014-2016, TRIS Rating’s base-case expects NWR’s total revenues to stay in a range of Bt7,000-Bt8,000 million per annum. The revenue contribution from the property development is expected at least Bt400 million per annum. Downside risk on revenue is moderate as the company’s backlog has secured about half of TRIS Rating’s base-case revenues. The operating margin is expected to improve gradually from 6%-8% to stay above 8% during 2014-2016 due to higher gross profit margin from property development projects. NWR’s debt to capitalization is expected to stay in a range of 45%-50% during 2014-2016. Funds from operations (FFO) are expected to be around Bt500-Bt600 million per annum. The FFO to total debt ratio is expected to stay higher than 18%, while the EBITDA (earnings before interest, taxes, depreciation, and amortization) interest coverage ratio is expected to stay at least above 4.5 times.

Company Rating: BBB- 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 2014, 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.