TRIS Rating Affirms Company Rating of “NOBLE” at “BBB” and Senior Unsecured Debt Ratings at “BBB-”, with “Negative” Outlook

Stocks News Wednesday November 9, 2016 13:30 —TRIS News Release

TRIS Rating has affirmed the company rating of Noble Development PLC (NOBLE) at “BBB” with “negative” outlook, and has also affirmed the ratings of NOBLE’s senior unsecured debentures at “BBB-”. The ratings reflect NOBLE’s well-accepted brand name in the middle- to high-end segments of the condominium market, as well as its product differentiation strategy, and its large backlog which partly secures its future revenue stream. These strengths are partially offset by NOBLE’s weak financial profile and its business concentration risk as NOBLE has a huge investment in a single large condominium project, Noble Ploenchit. The Noble Ploenchit project is valued at Bt19,000 million or 37% of NOBLE’s total project portfolio. A huge investment in this project caused its financial profile to drop sharply from the past. However, NOBLE’s financial profile is expected to recover once the company starts transferring its backlog in the Noble Ploenchit in 2017. The ratings are also constrained by a slowdown in the domestic economy, which may impact the demand in the high-end residential property segment in the short to medium term.

TRIS Rating maintains the “negative” outlook for NOBLE’s ratings. The “negative” outlook reflects NOBLE’s lower-than-expected operating performance resulting from slower presales and transfer than the target levels. The ratings could be downgraded if the company could not deliver its large backlog in Noble Ploenchit as scheduled, causing its net interest-bearing debt to equity ratio to be over the covenant limit in the beginning of 2017. The outlook could be revised back to “stable” should NOBLE’s operating performance and financial profile improve while the debt to capitalization ratio is kept at around 60%-65% from 2017 onwards. The credit upside is unlikely in the near 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. The company offers unique designs for its products. As of September 2016, NOBLE had 15 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 Bt18,000 million. The total backlog was valued at Bt23,000 million. Around half of the backlog comes from the Noble Ploenchit project.

NOBLE’s presales in 2015 declined by 48% year-on-year (y-o-y) to Bt2,652 million. Presales during the first nine months of 2016 improved to Bt2,767 million. Revenue in 2015 and in the first six months of 2016 plunged by 84% y-o-y and 35% y-o-y, respectively. The significant drop in revenue was due to the fact that the company did not complete any condominium projects during 2015 through the first half of 2016 and few completed residential units were transferred to customers. As a result, NOBLE’s performance for the entire 2016 will hinge heavily on its ability to deliver the large backlog in the Noble Ploenchit project. NOBLE’s revenue in 2017 will reach a record high as most of backlog units in the Noble Ploenchit are scheduled for delivery. Going forward, NOBLE’s revenue during 2018-2020 is expected to stay at least Bt4,000 million per annum, supported by the current backlog and remaining unsold units in the existing projects.

NOBLE’s gross profit margin decreased to 36% of total revenue during the first half of 2016, 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) shrank to -114% in 2015 and -263% during the first six months of 2016. The operating profit margin showed a negative figure because of very low revenue and high selling, general and administration (SG&A) expenses. Over the next three years, NOBLE’s operating profit margin is expected to recover to at least 20% of total revenue as a large amount of backlog will be recognized from late 2016 onwards.

Total debt was Bt16,923 million as of June 2016, up from Bt14,209 million as of December 2015 and Bt11,417 million as of December 2014. The debt to capitalization ratio was 79% as of December 2015 and 83% as of June 2016. The net interest-bearing debt to equity ratio was 3.4 times at the end of 2015 and 4 times at the end of June 2016. However, NOBLE received approval from its bondholders to waive the financial covenant during 2015 and 2016. NOBLE’s financial leverage is expected to improve from 2017 onwards once the company is able to transfer a number of finished backlog units in the Noble Ploenchit project. TRIS Rating expects NOBLE’s debt to capitalization ratio to stay at around 60%-65% from 2017 onwards in order to satisfy the current credit ratings.

Due to the rise in financial leverage, NOBLE’s ratio of funds from operations (FFO) to total debt has decreased. The ratio was -3.6% in 2015 and -3% (annualized with trailing 12 months) during the first six months of 2016, down from 1.7% in 2014 and 4% in 2013. NOBLE’s liquidity is still adequate. The company’s financial flexibility as of June 2016 consisted of cash on hand of Bt2,700 million and undrawn unconditional project loans of Bt3,600 million. NOBLE also required customers to make down payments of 15%-30% of the selling prices. The company has Bt9,127 million in debt due in the next 12 months, comprising the Bt693 million bills of exchange (B/E), the Bt2,998 million debentures, and the Bt5,436 million long-term project loan. The project loan will be repaid by cash received from the transfer of units in the Noble Ploenchit.

Noble Development PLC (NOBLE)
Company Rating: BBB
Issue Ratings:
NOBLE175A: Bt1,500 million senior unsecured debentures due 2017 BBB-
NOBLE187A: Bt1,500 million senior unsecured debentures due 2018 BBB-
NOBLE196A: Bt1,500 million senior unsecured debentures due 2019 BBB-
Rating Outlook: Negative
TRIS Rating Co., Ltd./www.trisrating.com
Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand
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