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APD's ratings are based on its strong brand recognition, as well as its expertise and solid market position in Bangkok's inner-city townhouse and condominium development market. The ratings also reflect APD's strong sales performance, evidenced by a strong sales backlog of Bt13 billion at end-June 2007, which to some degree would help mitigate concerns over an industrywide slowdown, Fitch said in a press statement issued on Friday.

 Nevertheless, APD is exposed to the cyclical nature of the residential development business. Weakening economic growth outlook, continued political uncertainty and high oil prices have undermined homebuyer confidence, which has resulted in a substantial slowdown in new housing demand in 2006 and 2007. In addition, intensified competition continues to put pressure on margins. Other operational risks include the non-recurring nature of APD's project cash flows and increasing working capital requirement amid condominium project expansion. Partially mitigating these risks is APD's focus on cash flow management, as well as its manageable debt and liquidity profile.

 In H107, APD's EBITDA declined by 35per centyoy to BT435 million due to a decline in sales and margins as a result of a continued industrywide slowdown and intense competition. However, Fitch expects sales recognition of one condominium project worth BT2.5 billion  to be a key earnings driver for H207, which should help boost its annual sales and EBITDA by about 20per centyoy for 2007.

 Although funds from operations were relatively strong, APD's free cash flows (post dividend) remained weak in 2006 and H107 due to a high dividend payout and land acquisition. At end-H107, APD's net debt stood at BT3.7 billion  which was equivalent to 4.3x of its last-12-month EBITDA (end-2006: 2.9x). Continued substantial cash outflows to fund new land acquisition and the construction of new high-rise projects will see its net debt remain high at about BT4.0 billion  up to 2009, although APD's debt profile should remain manageable. Its short term debt is now about 30per centof its debt portfolio, with the reminder 70per centexpected to mature over the next four years. APD's liquidity is supported by a cash balance of BT914 million and its remaining undrawn committed credit facilities of BT12 billion  at end-H107.

 The Stable Outlook reflects the likelihood that APD will be able to maintain its strong business profile and liquidity position consistent with the current credit metric. A sustainable large net debt reduction and sustained net debt to EBITDA ratio of below 2.0x could trigger a positive revision of the ratings, while a sustained substantially higher-than-expected net debt or much worse-than-expected industry prospects could result in a negative revision.

- The Nation