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 due within three years. The proceeds from the new debentures will be used to repay some of its existing debentures.

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’s presales in 2017 was Bt4,058 million, increasing by 43% year-on-year (y-o-y), mainly supported by presales from the Noble Around Sukhumvit 33 project and the Noble Ambience 42 project. Similarly, presales during the first quarter of 2018 improved to Bt1,571 million, mainly from presales of the Noble Nue Changwattana project. Revenue improved significantly to Bt9,677 million in 2017, compared with Bt4,503 million in 2016. A transfer of backlog from the Noble Ploenchit project since late 2016 drove revenue growth. Revenue in the first three months of 2018 was Bt1,021 million, dropping by 69% y-o-y. The main reason was that no large backlog were transferred to customers, while there was a transfer of some backlog from the Noble Ploenchit pushing revenue growth during the same period last year. As a result, NOBLE’s performance in 2018 will hinge on its ability to deliver a large backlog in the Noble Revolve Ratchada II project. NOBLE’s current backlog partially secures revenue of Bt3,400-Bt5,300 million per annum during 2018-2020. Including the unsold units worth around Bt8,200 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 decreased to 38% of total revenue during the first quarter of 2018, from 39%-43% during the past five years. The operating profit margin (as measured by operating income before depreciation and amortization as a percentage of sales) declined to 15% during the first three months of 2018 due to high selling, general and administration (SG&A) expenses. However, the operating profit margin is expected to recover and stay at least 20% of total revenue once the large amount of backlog will be recognized from the second quarter of 2018 onwards.

Total debt was Bt14,657 million as of March 2018, up from Bt12,637 million as of December 2017 and Bt14,301 million as of December 2016. The debt to capitalization ratio improved to 66% as of December 2017 and 69% as of March 2018 from 76% as of December 2016. The net interest-bearing debt to equity ratio was 1.81 times at the end of 2017 and 1.83 times at the end of March 2018, 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 Bt13,800 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.

The ratio of funds from operations (FFO) to total debt was 19% in 2017, up from 7% in 2016. Subsequently, the ratio dropped to 9% (annualized with trailing 12 months) in the first three months of 2018 due to higher financial leverage. However, NOBLE’s liquidity is still adequate. The company had sufficient financial flexibility as of March 2018, consisting of cash on hand of Bt2,630 million and undrawn unconditional project loans of Bt6,658 million. NOBLE requires customers to make down payments of 20%-30% of the selling price. The company has Bt3,865 million in debt due in the next 12 months, comprising bills of exchange (B/E) of Bt995 million, debentures of Bt2,570 million, and long-term project loans of Bt300 million. The debentures will be refinanced by a new debenture issuance. The project loans 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.

Under TRIS Rating’s base case scenario, we assume that, 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.

RATING SENSITIVITIES

The rating and/or outlook of NOBLE could be under a downward pressure if 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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