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Second half may be bleak for some retail, property firms

The outlook for some property and retail corporations could come under pressure during the second half of this year if the protracted political instability intensifies the economic downturn, according to Fitch Ratings. Most other industries, including large industrial, energy-related and telecoms, are in a stronger position to weather the political impasse.

The industries most exposed to declining consumer confidence are at risk. Property and retail companies have been reporting weaker operating performance since the onset of political instability in the final quarter of last year, so their rating headroom has narrowed.

Telecom, oil and gas, petrochemicals, and building-materials companies have still reported robust operating results since the fourth quarter of 2013.

Residential developers are highly vulnerable to the economic slowdown. Presales of leading players fell sharply last quarter, including those for Pruksa Real Estate, Sansiri, Land and Houses, and AP Thailand.

This was especially true for their condominium projects, where construction delays compounded the sales drop.

However, revenues are expected to be maintained or to grow slightly this year, supported by the recognition of their strong backlog of presales and a high level of completed projects ready to transfer to customers.

Developers of commercial real estate are less affected. The average commercial occupancy rate last quarter for Greater Bangkok remained above 95 per cent, according to Colliers International.

Most of their income derives from rent, which is buffered by long-term leases, even though some discounts were given to tenants in areas affected by the political rallies since the fourth quarter of last year.

In the retailing industry, the leading superstores - Tesco Lotus and Big C - have been posting year-on-year declines of same-store sales of 3-9 per cent on a quarterly basis since the second half of last year.

CP All's convenience-store chain 7-Eleven dipped last quarter, but the sole modern cash-and-carry operator, Siam Makro, also a subsidiary of CP All, managed to maintain growth.

In the case of consumer staples, the impact on sales should be limited, as a large portion of their product offerings are demand inelastic. These retailers have the ability to readjust their product mix, launch promotional campaigns and implement cost-control measures to manage their sales and margins.


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