Tris reiterates BBB grade for Origin
Tris Rating has affirmed the company rating on Origin Property Plc (ORI) at BBB and revised the company’s outlook to positive from stable.
The positive outlook reflects ORI’s higher-than-expected growth in revenue and profitability. Based on its large backlog, ORI’s revenue base is expected to grow to more than 10 billion baht a year, while its operating margin (operating income before depreciation and amortisation as a percentage of revenue) is expected to remain above 20% over the next three years.
The rating reflects ORI’s improving market position in the middle- to lowpriced condominium segment. Its expansion into the high-priced condo segment and landed housing property also received a good response. But the rating is partly constrained by ORI’s relatively high financial leverage as a result of its aggressive expansion.
The rating also takes into consideration the relatively high level of household debt nationwide and the cyclical and competitive nature of the residential property industry.
ORI’s operating performance during 2017 through the first quarter of 2018 was higher than Tris’s expectation. ORI’s revenue grew sharply over the past few years.
Revenue in 2017 rose to 9.25 billion baht, up from 3.15 billion in 2016 and 2 billion in 2015. In the first quarter of 2018, revenue was 2.4 billion baht, up 178% from the same period last year.
The strong growth in revenue was driven by the acquisition of Proud Residence Co, the owner of the Park 24 project, in 2017. The large backlog of Park 24 project will help support the revenue growth of ORI during 2018-2020.
Despite the lower gross profit margin of the Park 24 project, ORI was able to maintain its profitability as operating margin stayed in the range of 24.5-25.5% during 2015-17 and improved to 34.8% in the first quarter of 2018.
Tris’s base case assumes that ORI’s revenue will range from 12 billion to 13 billion baht a year during 2018-20. Operating margin is expected to stay above 20%.
As of March 2018, ORI had 36 projects worth a combined 53.3 billion baht, with an average selling price across the entire portfolio of 3.3 million baht per unit. The company had 16.6 billion baht worth of units available for sale across the project portfolio.
Under its five-year business plan, ORI plans to expand its portfolio towards lowrise housing projects and rental properties. In 2018, ORI plans to launch new projects, including both owned and JV projects, worth 28 billion baht, up from 15.15 billion in 2017.
The company also plans to invest between 1.2 billion and 2.4 billion baht a year in hotels, serviced apartments and offices. The diversification into the landed property segment will help fulfil its portfolio and smooth its earnings in the long run.
At the end of March 2018, the adjusted debt to capitalisation ratio (including a proportionate 51% of debt from the joint venture and considering the net present value of operating leases as debt and netting out preferred shares from equity) was 69%, up from 65% in 2017.
ORI’s leverage is expected to remain high because the company plans to launch a number of residential property projects and mixed-use projects.
Under Tris’s base case, ORI’s adjusted debt to capitalisation ratio is expected to stay at 60-65% over the next three years, with the net debt to equity ratio staying at 1.5-2 times.