Form 56-1 Year 2008/2009
2. Risk Factors
Efficient risk management is a crucial dynamic for the successful operation of the Company.
The Company continuously assesses relevant risk factors and enhanced risk management measures.
In 2008, the Company invested in accounting software of database and budget management to
improve the effectiveness of the company’s resource management
2.1
Risk from Discontinuous Revenue Stream
In the last fiscal year, the Company’s revenue came from property development projects and
project management, which had project basis features and hence risk of discontinuous revenue
stream. The management realizes this risk and has a business plan to incessantly develop new
property projects balanced by hotel business expansion to ensure a continuous stream of revenue
from the business operations of the Company.
2.2
Risk from Hotel Business Operations
Formerly, the Company’s core businesses were businesses related only with property
development. However, the Company presently places more emphasis on the hotel business
especially 3-6 star hotels in Bangkok as well as up-country. Hence, there may be risks from operating
this new business since that was not the Company’s core business in the past.
The Company has formed a joint venture company, Absolute Hotel Services Co., Ltd., with
partners that have extensive experience in the hotel business. The objective for setting up the joint
venture is to develop a hotel network under the brand U Hotels & Resorts to manage 3-4 star hotels
of the Company. For 5-6 star hotels, the Company forms alliances with international hotel chains
since these international hotel chains are well established and have their own clientele. Moreover, the
Company was a shareholder of the Regent Hotel on Rajadamri Road and The Empress Hotel in
Chiang Mai as well as operating hotels such as the Empress Bangkok, now known as the Eastin
Makkasan Bangkok. Presently, the Company also operates the Eastin Lakeside Hotel and therefore
has the capability to operate hotel businesses.
2.3
Risk from Construction Business Operations
The Company and Hip Hing Overseas Limited have jointly established Hip Hing Construction
(Thailand) Company Limited (Hip Hing) to operate a construction business, which is a new business
alike to the property development business where the Company has extensive experience.
The construction business is related to the property development business. Hence it facilitates
the Company’s business management since Hip Hing will construct a number of projects for the
Company as appropriate. Therefore, the Company will not have to acquire such services from various
sub-contractors. Hip Hing also has foreign executives who have expertise in construction with
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Form 56-1 Year 2008/2009
extensive experience in constructing large scale projects overseas and hence have superior
construction know-how and technology that will greatly support the Company’s core business.
2.4
Risk from Rising Prices of Construction Materials
Cost of construction materials is an imperative component of construction cost in developing
property projects. Price of construction materials tend to fluctuate in line with rising oil prices and
growth of the property sector. Construction cost of the Company’s projects has risen in the recent
past as a result of this fluctuation and consequently impacted the Company’s profitability.
However, the Company efficiently manages construction cost by including cost of construction
material and labour of the project in its contracts. By using this policy, construction contractors
become responsible for fluctuation in the cost of construction materials. As for construction materials
that are the Company’s responsibility, the company has a qualified Project Development Department
with experience and good relationships with suppliers. The Company has strong bargaining power
and is able to control the cost of construction material at the appropriate level. The Company always
plans the construction in detail and assesses the amount of construction materials required for each
material for its projects prior to placing orders.
2.5
Risk from the Baan Aur-Arthorn Project
The Company has signed a contract with National Housing Authority to construct Baan AurArthorn project on April 25, 2006. However, due to political uncertainty which may affect public policy
concerning the continuity of this project, the Company will have to wait for clarification on the matter.
This uncertainty directly affects the number of units that the Company shall be approved to construct
and hence future revenue.
At present, the number of units that the Company has been approved to construct has been
reduced from 9,584 units to 8,048 units from the total of 20,000 units since the National Housing
Authority has terminated the project at Bang Bor (1,536 units). The Company has made provision for
impairment of the development cost of the Saraburi project and the Chonburi project in the amount of
19.8 million baht and 11.2 million baht as stated in financial statements as at March 31, 2008 and
2009 respectively. However, the Company still receives revenue by installments from the completed
houses that have been handed over to the National Housing Authority.
The Company is scheduled to handover 4,216 completed houses by September 2009 in
accordance with the 180 day extension approved by the Cabinet. The Company is confident that it
will be able to handover the project within the stated time period.
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Form 56-1 Year 2008/2009
2.6
Risk from Interest Rate Volatility
After the completion of its business rehabilitation plan, the Company still has a certain amount
of debt outstanding. However, these debts are non-interest bearing debts and thus the Company is
not affected by the risk from interest rate volatility. As regards new financing from financial institutions
for the Company’s projects after the termination of the business rehabilitation, the Company has
negotiated with several financial institutions and entered into loan agreements with one financial
institution that offered the best terms and conditions.
As for future projects, the Company has a policy to find its funds from the best sources
depending on the economic and financial situation at the time.
2.7
Risk from Overdue Debt Repayment
In accordance with the business rehabilitation plan, the Company has to pay back installment
debts to unsecured creditors totaling Baht 233.7 million due in late October 2007 and 2008. However,
the Company did not make payment to such unsecured creditors and is currently in negotiation with
those creditors.
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