TRIS Rating Co., Ltd. has affirmed the company rating of Lalin Property PLC (LALIN) at “BBB”. At the same time, TRIS Rating has revised upward the outlook of LALIN to “positive” from “stable”.
The “BBB” rating reflects LALIN’s cost competitiveness, prudent financial management, and its acceptable track record in the middle- to low-income residential housing segment. However, these strengths are partially offset by the cyclical nature of the property development industry and the expectation of more intense competition as many developers have aggressively acquired land since the second half of 2010.
The “positive” outlook reflects the expectation that LALIN will be able to continually improve its operating performance in the short to medium term. The rating could be upgraded should the company be able to maintain its profit margins and keep its leverage level low despite the need for more future investment. On the contrary, a significant drop in its operating performance from the current level could cause its rating or outlook to be revised downward.
TRIS Rating reported that LALIN was established in 1988 and listed on the Stock Exchange of Thailand (SET) in November 2002. Mr. Taveesak Watcharakkawongse and Mr. Chaiyan Chakarakul, the major shareholders, held 63% of the company’s total shares as of April 2011. The company has focused on low-rise housing projects and offered single-detached house (SDH), semi-detached house (semi-DH), and townhouse units, with an average price in 2010 of Bt2.6 million per unit. During the last three years, sales of SDH units have been the major source of revenue, constituting about 60% of total revenue. Sales of semi-DH and townhouse units contributed around 29% and 11% of total revenue, respectively. LALIN’s ability to control construction costs helps the company offer competitively-priced housing units with favorable profit margins.
LALIN’s total revenue increased steadily from Bt955 million in 2007 to Bt1,693 million in 2010. The government tax incentives in effect during March 2008-March 2010, the introduction of new housing brands, and improving sales volume in some existing projects helped raise LALIN’s presales and revenue during the past few years. However, revenue in the first quarter of 2011 dropped to Bt350 million, 32% lower than the same period of 2010, as the government tax incentives had expired. However, despite the fall in revenue, the value of presales in the first quarter of 2011 remained strong at around Bt577 million. The gross profit margin held at a high level, or around 40% of sales. The adjusted operating margin was 27.28% in 2010, down slightly from 28.13% in 2009 because of efficient cost control, despite the expiration of the benefits from the government tax incentives. With good operating performance and a conservative pace of expansion, the company’s cash flow protection remained strong. The funds from operations (FFO) to total debt ratio stayed at around 60% throughout 2009 and 2010. Financial flexibility remained at a satisfactory level, supported by undrawn committed credit facilities of Bt1,358 million and the relatively low debt to capitalization ratio of 15.34% at the end of March 2011.
TRIS Rating said, demand for housing depends mostly on consumer confidence and the economic environment. The government usually provides supports for this industry during economic downturns. Due to the government tax incentives scheme offered during 2008-2010 and the domestic economy which recovered faster than expected, demand for residential property improved significantly starting in the second half of 2009. However, the momentum was maintained throughout 2010. Several developers have stepped up land acquisitions since late 2009 which caused the leverage levels of companies in this industry to increase significantly in 2010. The change in loan-to-value policy (LTV ratio) by the Bank of Thailand (BOT) in 2011 and the rising interest rates are two factors which are expected to curb speculative demand in the condominium segment and the affordability of housing for the low-income segment. Therefore, the growth rate of industry is expected to be lower this year compared with the previous year. However, large developers are expected to gain more market share at the expense of smaller developers as several major developers have diversified by entering the low-priced housing segment. This move will cause the competition in this segment to be more intense than before. -- End
(Continue on page 2)
Lalin Property PLC (LALIN)
Company Rating: Affirmed at BBB
Rating Outlook: Positive from Stable
Copyright 2011, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.