Tris rates SIRI BBB+ after B5bn debenture proposal

Tris Rating has affirmed the company rating of Sansiri Plc (SIRI), its existing senior unsecured debentures and a proposal to issue up to 5 billion baht in senior unsecured debentures at BBB+.

The proceeds from the new debentures will be used to refinance Sansiri’s existing debentures that mature in August 2018 and for business operations.

The rating reflects Sansiri’s moderate profitability and expects higher financial leverage from aggressive business expansion, which will lower its cash flow protection. The ratings also takes into consideration the cyclical nature and competitive environment of the residential property development business and concerns over the high level of household debt nationwide.

As of June 17 2018, the value of its remaining unsold units (including built and unbuilt units) across Sansiri’s portfolio was around 51 billion baht (excluding unsold units worth 16 billion baht under joint ventures). The total backlog was valued at around 22 billion baht (excluding 25 billion baht under joint ventures) and will partly secure Sansiri’s future revenue stream through 2021.

Sansiri’s total revenue has ranked among the top three listed property developers for several years. Revenue during the first quarter of 2018 decreased by 28% year-on-year to 5.03 billion baht.

The drop came because Sansiri recognised lower revenue from its own condominium projects. Revenue from condo projects was 23.04 billion baht in 2015, and thus declined to 19.26 billion in 2016 and 12.89 billion in 2017. Going forward, Sansiri’s revenue during 2018-19 is expected to be around 30 billion baht per year, as few of its own condo units will be delivered to customers.

Sansiri’s operating income as a percentage of sales (operating profit margin) declined to 4% in the first quarter of 2018 from 12-14% during 2014-17. Net profit margin was 5% of total revenue in the first three months of 2018, down from 9-12% during the past four years.

The drop was due to lower profit margins from some residential projects and thinner profit margin from business management under the joint venture projects. However, Sansiri is expected to keep operating profit margins and net profit margins at the target levels over the next three years.