TRIS lowers rating of RT, contract company, high costs, increased debt, customers paying slowly
Today (September 21, 66) , Tris Rating announced a downgrade of Right Tunnelling Public Company Limited ( RT ) , a specialist in tunnel and underground structure construction , to “BB+” from “BBB-” , and changed the company's credit rating outlook to “Stable” from “Negative”.
The downgrade reflects the company's weaker-than-expected operating performance and a significant deterioration in its financial profile.
Smaller equity due to higher-than-estimated losses in 2565 and increased leverage from longer collection periods for uncollected trade receivables were the main contributors. Make the financial burden higher
The rating continues to reflect the limited size of the business. Various types of construction work and high concentration in only a few large projects.
TRIS stated that the credit rating is also weakened by intense competition and the cyclical nature of the construction business.
on the other side The rating is supported by the company's proven track record in tunnel and underground infrastructure construction and the company's growing backlog.
TRIS stated that RT was significantly affected by a loss of 312 million baht in 2565 due to a decline in gross margins in many projects amid higher construction material costs than expected.
and slower revenue recognition due to delays in construction of many projects. Despite significant cost improvements in the final quarter of 2565, these factors continued to pressure the company's profits in the first half of 2566, with the company reporting a loss of Bt17 million.
Looking ahead, TRIS expects the company's operating performance to gradually improve due to the increasing value of the company's work in hand and improving gross profit margins from stable construction material costs. More and more unprofitable projects are completed.
Under TRIS's base case assumptions, gross margin is expected to recover to around 12%-13% during 2566-2568. RT is expected to receive new construction contracts worth approximately 3-4 billion. baht per year In order to maintain operating income of approximately 3-4 billion baht per year during 2566-2568.
The company's earnings before interest, taxes, depreciation and amortization (EBITDA) are expected to improve to the range of 300-450 million baht per year.
The company's operating results are expected to recover. But fierce competition in the construction business and fluctuations in construction material prices remain important risks.
In addition, challenging drilling operations can create unexpected obstacles that risk project delays and higher project costs than expected. Slower-than-expected operating results of the company could have a negative impact on the rating.
TRIS said RT's financial position has deteriorated significantly over the past three years. The larger-than-expected loss has shrunk the company's capital base to about 3 billion baht as of June. 1 from 2566 billion baht as of December 1.34
Although TRIS sees the company returning to profit in 2566-2568, it may take several years for the capital base to return to the level in 2564.
In addition, the collection period has become longer, leading to a larger number of uncollected trade receivables and trade receivables. As a result, the company's working capital needs are high. This causes the company's debt burden and financial costs to increase as well.
The company's adjusted financial liabilities increased to nearly 2 billion baht as of June 2566 from 990 million baht as of December 2564.
looking forward TRIS expects the company's financial status will largely depend on its ability to reduce unbilled and trade receivables.
The company's debt burden is expected to decrease significantly upon receipt of payment from project owners. However, The time frame for receiving payment from project owners remains uncertain. Under TRIS's base case assumptions, the company's cash cycle is expected to gradually decrease from a peak of 192 days in 2565 to a level of approximately 100-120 days in 2568.
Therefore, the company's debt to EBITDA ratio will improve to 4-6 times over the next 2-3 years. The company's debt to capitalization ratio is expected to stay in the range of 55%-65. %, which is higher than TRIS Rating's previous target level of 47%-54%.
The company's business, when considering its revenue base and assets, is relatively small compared to other construction contractor competitors that have received credit ratings.
Moreover, the company's performance depends on only a few large projects. Revenue from the top five largest projects accounted for nearly half of revenue in the first quarter of 5.
Meanwhile, the top 5 largest projects still under construction account for nearly 80% of the construction work on hand as of June 2566. Therefore, if the company encounters problems in delivering or has obstacles in operating the project. Even just one large project can have a significant impact on performance.
However, in the future, TRIS expects that the company will benefit from the government's efforts in developing the country's infrastructure.
TRIS expects that many of the potential projects will involve tunneling, a field in which the company has expertise.
The company has won new construction contracts totaling 6.7 billion baht in 2565 and 2.7 billion baht in the first six months of 6, including the Den Chai-Chiang Rai-Chiang Khong double-track railway project. and the Luang Prabang Dam construction project with a total value of 2566 billion baht
As a result, the value of the construction work on hand has increased by more than 1 billion baht as of June 2566, which will help the company's total operating income base increase from the level of 2-3 billion baht to the level of 3-. 4 billion baht per year during 2566-2568
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