TRIS Rating Assigns “BBB-/Stable” Rating to Senior Unsecured Debt Worth Up to Bt1,500 Million of “NOBLE”

TRIS Rating affirms the company rating of Noble Development PLC (NOBLE) at “BBB” and also affirms the existing ratings of NOBLE’s senior unsecured debentures at “BBB-”. At the same time, TRIS Rating assigns the rating of “BBB-” to NOBLE’s proposed issue of up to Bt1,500 million in senior unsecured debentures. The proceeds from the new debentures will be used for business operation.

The ratings take into consideration NOBLE’s well-accepted brand name in the middle- to high-end segments of the condominium market, its large backlog which partly secures its future revenue stream, and its relatively high financial leverage. The ratings are also factored in the high level of household debt nationwide, coupled with the rising competition in high-priced condominium segment which may impact the demand in the middle- to high-end residential property market in the short to medium term.

NOBLE is a medium-sized property developer in Thailand. The company was established in 1991 and listed on the Stock Exchange of Thailand (SET) in 1996. NOBLE primarily develops condominium projects, with selling prices ranging from Bt120,000 to Bt270,000 per square metre (sq.m.). NOBLE also offers other types of residential products including single detached houses (SDH), townhouses, and land plots. NOBLE’s products are known for their unique designs. As of September 2017, NOBLE had 16 active projects. Condominium projects comprised 90% of the value of its project portfolio, while the rest was low-rise housing projects. The value of the remaining unsold units (including built and un-built units) was Bt19,000 million. The total backlog was valued at Bt13,000 million.

NOBLE’s presales during the first nine months of 2017 was Bt2,533 million, mainly supported by presales from the Noble Around Sukhumvit 33 project. Revenue improved significantly to Bt4,503 million in 2016 and Bt7,828 million in the first nine months of 2017, compared with Bt373 million in 2015. A transfer of backlog in the Noble Ploenchit project since late 2016 drove a revenue growth. NOBLE’s current backlog partially secures revenue of Bt2,700-Bt3,700 million per annum during 2018-2020. Including the unsold units worth around Bt9,000 million of the Noble Ploenchit project, NOBLE’s revenue over the next three years is expected to be Bt5,000-Bt9,000 million per annum.

NOBLE’s gross profit margin increased to 42%-43% of total revenue during 2016 through the first nine months of 2017 from 38%-40% during the past five years. The operating profit margin (as measured by operating income before depreciation and amortization as a percentage of sales) recovered to 26% in 2016 and 32% in the first nine months of 2017 from -113% in 2015 and 14% in 2014. Over the next three years, the operating profit margin is expected to stay at least 20% of total revenue.

The debt to capitalization ratio improved to 76% as of December 2016 and 66% as of September 2017 from 79% as of December 2015. The net interest-bearing debt to equity ratio decreased to 1.77 times as of September 2017, which was in line with the financial covenant limit of net interest-bearing debt to equity ratio at 2.5 times. Going forward, NOBLE plans to launch several residential projects worth around Bt13,000 million in 2018 and Bt23,000 million in 2019. Despite its aggressive expansion plan, TRIS Rating expects the company to keep the debt to capitalization ratio at around 65% or the interest-bearing debt to equity ratio at around 2 times in order to satisfy the current credit ratings.

Due to higher profitability and lower financial leverage, NOBLE’s ratio of funds from operations (FFO) to total debt increased. The ratio was 7% in 2016 and 28% (annualized with trailing 12 months) in the first nine months of 2017, up from -4% in 2015 and 2% in 2014. NOBLE’s liquidity is still adequate. The company had sufficient financial flexibility as of September 2017, consisting of cash on hand of Bt995 million and undrawn unconditional project loans of Bt2,770 million. NOBLE requires customers to make down payments of 20%-30% of the selling prices. The company has Bt3,520 million in debt due in the next 12 months, comprising the bills of exchange (B/E) of Bt685 million, debentures of Bt1,848 million, and long-term project loan of Bt987 million. The debentures will be refinanced by a new issuance. The project loan will be repaid by cash received from the transfers of units in condominium projects.

Rating Outlook

The “stable” outlook reflects the expectation that NOBLE will be able to sustain its operating performance and financial position at the target levels. Over the next three years, NOBLE’s revenue is expected to be Bt5,000-Bt9,000 million per annum and the company is expected to keep its operating profit margin at least 20%. The debt to capitalization ratio should be around 65% or the interest-bearing debt to equity ratio should stay around 2 times.

NOBLE’s ratings and/or outlook could be revised downward should its operating performance and/or financial profile deteriorate significantly from the target levels. On the other hand, NOBLE’s ratings and/or outlook could be revised upward should its business scale enlarge and its capital structure improve significantly from the current level.

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