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 expanded its business scope and started providing warehouse space for rent in 2005. As of May 2014, the company’s portfolio comprised 83 leased factories and 51 leased warehouses, with leased space totaling 524,170 square meters (sq.m.). Its facilities are located in major industrial estates and along the main logistics routes in Thailand.
Currently, TICON’s major shareholders remained Rojana Industrial Park PLC (20.5%), City Realty Group (7.1%), and TICON’s management (6.7%). The company’s competitive advantage stems from its proven record of providing quality RBFs to customers and the cost advantage it obtains by using an in-house construction team to build standard factories at competitive prices. TICON remains the leading provider of RBFs and warehouses in Thailand, according to CB Richard Ellis (CBRE). As of March 2014, TICON and its affiliated property funds had a combined market share of 50%, based on leased area. This share is higher than its competitors, such as Hemaraj Land and Development PLC (19% share), and Pinthong Industrial Park Co., Ltd. (11%). In terms of warehouse, TICON is one of the two key operators in warehouse for rent business. TICON and its affiliated property funds supplied about 48% of the total warehouse area, as of March 2014.
During the first five months of 2014, the size of TICON’s portfolio increased significantly. TICON added 175,657 sq.m. of leased area (before subtracting the space sold to the property funds) in the first five months of 2014, compared with an annual net increase of 130,000-150,000 sq.m. in 2012-2013. The increase was largely driven by an increase in warehouse space in the Central area. The leased area in TICON’s warehouses increased by 136,217 sq.m. in the first five months of 2014, compared with an average annual net increase of 160,000 sq.m. during 2011-2012. In terms of RBF, TICON’s RBF increased slightly, rising by 39,440 sq.m. during January-May 2014. The increase in RBF’s leased area mainly stemmed from demand in the eastern region of Thailand, while demand for space in flood-prone areas (Ayudhya and Pathumthani provinces) remains stagnant.
TICON’s rental income increased slightly, rising by 5% year-on-year (y-o-y) to Bt1,110 million in 2013 from Bt1,053 million in 2012. However, rental income declined by 25% y-o-y to Bt202 million, during the first three months of 2014. The drop came because TICON’s sold a number of assets to the property funds in December 2013. Revenue from assets sold to the property funds remains the largest portion of the company’s revenue. Revenue from assets sales amounted to Bt4,663 million in 2013 and Bt498 million in the first quarter of 2014.
The gross margin of rental income rebounded to 76% in 2013 and 75% in the first quarter of 2014. Excluding the effect of the accounting policy change regarding reclassifying of assets, the gross margin of rental income was 68% in 2013 and improved to 72% for the first three months of 2014. The gross margin in the first quarter of 2014 is close to the level the company achieved in 2010-2011, the pre-flood period.
During the past few years, TICON’s capital expenditures have increased substantially. The company has expanded its RBF and warehouse portfolio in the eastern region and other major provinces, in order to serve rising demand in these regions. Aggressive expansion caused occupancy rate (excluding pre-leased areas) to fall to only 60% as of May 2014, lower than 73% at the end of 2012. However, TRIS Rating expects the occupancy rate and rental income will improve gradually, given the rising demand from warehouse in Bangna zone and RBF in the eastern region. As of 31 May 2014, there were pre-lease tenants, totaling 89,363 sq.m. These tenants will gradually move into the provided space during the second half of 2014.
The company’s total debt to capitalization ratio deteriorated to 65.5% at the end of March 2014, from 57.3% at the end of 2012 due to massive capital expenditures. TICON plans to spend about Bt8,000 million per year in 2014 and 2015. Nevertheless, TICON’s flexibility in raising funds via capital increase and property sales would help improve its leverage and maintain cash flow protection at acceptable level. In June 2014, TICON had successfully raised equity via the issuance of Transferable Subscription Rights (TSRs) of approximately Bt2,300 million. Moreover, TICON plans to sell assets worth Bt5,000-Bt6,000 million to the real estate investment trusts (REITs) in 2014.
The coup d’état on 22 May 2014 led to an end of prolonged political deadlock in Thailand. In TRIS Rating’s view, the coup will have a negative effect on investor confidence and tourism, at least in the short term. However, the longer term effects of the coup on the Thai economy depend on the policies executed by the National Council for Peace and Order (NCPO), plus the success of the political and social reforms that the NCPO introduces. The political and social reforms aim to restore unity to the Thai society. If the policies of the NCPO lead to an end of the prolonged political conflict and bring peace, economic sentiment will improve substantially. The NCPO recently put forth its roadmap to propel the country towards democracy and its economic roadmap to stimulate domestic consumption and investment. These roadmaps thus far have met positive receptions from the public and investors.
TICON Industrial Connection PLC (TICON)
Company Rating: A
Issue Ratings: TICON155A: Bt800 million senior unsecured debentures due 2015 A
TICON158A: Bt700 million senior unsecured debentures due 2015 A
TICON162A: Bt500 million senior unsecured debentures due 2016 A
TICON165A: Bt650 million senior unsecured debentures due 2016 A
TICON165B: Bt300 million senior unsecured debentures due 2016 A
TICON169A: Bt600 million senior unsecured debentures due 2016 A
TICON171A: Bt100 million senior unsecured debentures due 2017 A
TICON171B: Bt1,000 million senior unsecured debentures due 2017 A
TICON177A: Bt500 million senior unsecured debentures due 2017 A
TICON178A: Bt300 million senior unsecured debentures due 2017 A
TICON185A: Bt1,200 million senior unsecured debentures due 2018 A
TICON187A: Bt350 million senior unsecured debentures due 2018 A
TICON189A: Bt300 million senior unsecured debentures due 2018 A
TICON19OA:Bt620 million senior unsecured debentures due 2019 A
TICON191A: Bt600 million senior unsecured debentures due 2019 A
TICON205A: Bt500 million senior unsecured debentures due 2020 A
TICON229A: Bt1,000 million senior unsecured debentures due 2022 A
Up to Bt2,500 million senior debentures due within 2024 A
Rating Outlook: Stable