The “stable” outlook is based on the expectation that TICON will be able to maintain its leadership position in the niche market of rental factories. With a three-year average lease tenor for most tenants and a manageable level of capital expenditures, the company will be able to withstand the current economic downturn.
TRIS Rating reported that TICON is the leading provider of RBFs in Thailand. It was established in 1990 and listed on the Stock Exchange of Thailand (SET) in 2002. The company has expanded its business scope and provided warehouse space for rent since 2005. As of March 2009, the company’s portfolio comprised 107 leased factories and 23 leased warehouses with a total leased space of 404,566 square meters (sq.m.). From 2005 through 2008, the major sources of revenues came from selling assets to TICON Property Fund or TFUND (70%) and rental income from industrial space (30%).
As of May 2009, TICON’s major shareholders were Rojana Industrial Park PLC (Rojana) (21.8%); TICON’s management (10.3%); City Realty Group (5.9%); and Thailand Equity Fund (6.0%). The company’s competitive advantage stems from its proven record of providing quality RBFs to customers and its cost advantage in building standard factories at competitive prices by using an in-house construction team. According to CB Richard Ellis (CBRE), TICON and TFUND had a combined market share in leased factory space of 71.8% as of March 2009. This share is far higher than peer companies such as Hemaraj Land and Development PLC (Hemaraj) (10.0%), Pinthong Industrial Park Co., Ltd. (Pinthong) (8.3%), Thai Factory Development PLC (TFD) and its property fund (5.4%), and Amata Corporation PLC (Amata) (4.5%).
TRIS Rating said, during the last five years, TICON’s rental income from leased factories and warehouses grew at an average rate of 13% per annum, reaching Bt812 million in 2008. The company has also consistently generated approximately Bt2,000 million of revenue per year from selling factories and warehouses to the TFUND. Despite the current slowdown of the global economy, rental income for the first three months of 2009 continued to increase, rising by 8.8% year-on-year. While leased factory space contracted by 2% during the first quarter of 2009, following a sharp drop in production by many manufacturers, leased warehouse space increased by 35% for the same period. As of March 2009, the occupancy rate (OR) for all TICON tenants remained satisfactory at 75.6%. A decline in the OR for leased factories was alleviated by a strong OR for warehouse space. A three-month deposit for most contracts cushioned the loss in revenue from early contract terminations by tenants.
The Thai industries have been impacted by the global economic downturn and domestic political uncertainty. The electronics, electrical appliances and auto parts industries have cut production since the fourth quarter of 2008. Some smaller manufacturers vacated their premises, causing the total amount of leased space across the RBF industry to decline by 4.2% (quarter-on-quarter) in the first quarter of 2009. The stimulus packages of industrialized nations would be expected to gradually revive the global economy, while the Thai government stimulus package is expected to boost domestic demand in the coming quarters, said TRIS Rating.
TICON Industrial Connection PLC (TICON)
Company Rating: Affirmed at A
Issue Ratings:
TCON109A: Bt500 million senior debentures due 2010 Affirmed at A-
TICON115A: Bt500 million senior debentures due 2011 Affirmed at A-
TICON118A: Bt500 million senior debentures due 2011 Affirmed at A-
Up to Bt800 million senior debentures due 2012 A-
Rating Outlook: Stable