TRIS Rating Co., Ltd. has affirmed the company rating of Hemaraj Land and Development PLC (Hemraj) at “A-”. At the same time, TRIS Rating has assigned the rating of “A-’’ to Hemraj’s proposed issue of up to Bt2,000 million in senior debentures. The outlook remains “stable”. The proceeds from the new debentures will be mainly used to finance a planned expansion. The ratings continue to reflect the company’s proven record in industrial estate development and its growing base of recurring income from the sale of utility services. The ratings also take into consideration heavy capital expenditures for expansion both in industrial estate and power generation businesses. The volatile nature of the industrial property market and the global economic slowdown following the European debt crisis remain rating concerns. The “stable” outlook reflects an expectation that the company can maintain its leading position in the industrial property industry. The expanding base of recurring income from the sale of utility services, energy business, and rental factories will provide a cushion for the company, despite the rising risk of a global economic slowdown.
TRIS Rating reported that Hemraj is one of the leading industrial estate developers in Thailand. It was established in 1988 and listed on the Stock Exchange of Thailand (SET) in 1992. As of March 2012, the Horrungruang family held 15.0% of Hemraj’s shares. In addition to selling industrial land and utilities, the company also developed a luxury condominium project in central Bangkok. Over the past three years, property sales accounted for 60%-70% of the company’s total revenue, except in 2009 when industrial land sales were hard hit by the global economic slump. Recurring income, mainly from the sale of utilities and rental income, made up the remainder, or about 30%-40% of total revenue.
TRIS Rating said, Hemraj owns and operates six industrial estates located in Rayong, Chonburi, and Saraburi provinces with a total gross area of 32,025 rai. Among the 756 existing customers in Hemraj’s estates as of March 2012, 34% were in the automotive industry and 10% were in the petrochemical industry. Approximately 40% of the remaining salable area of 6,261 rai, as of March 2012, was located in Hemaraj Eastern Seaboard Industrial Estate (H-ESIE). The major customers in this estate are in the automotive industry.
Land sales in 2011 reached a record high. Hemraj sold 1,670 rai, a significant increase from 930 rai sold in 2010. The major driver for the spectacular jump in land sales was the expansion of manufacturing activity, especially in the auto industry. According to a CB Richard Ellis report, total industrial land sales in Thailand rose to 5,758 rai in 2011, from 3,622 rai in 2010. In addition to the normal business expansion, land sales were also higher because of the relocation of some companies from the flooded industrial estates in central Thailand. These two supporting factors prolonged to 2012. Therefore, Hemraj was able to sell 928 rai of industrial land in the first quarter of 2012.
Hemraj’s recurring income has remained resilient and has increased gradually. Income from utility services which made up about two thirds of total recurring income for 2011, was Bt1,722 million, up by 20% over 2010. In the first three months of 2012, utility income continued to rise, climbing to Bt490 million, or a 16% increase over the same period last year. This was attributed to higher demand following expansion of existing customers and growing numbers of customers in Hemraj’s estates. The ready-built factory for rent business also showed impressive performance. The rented area increased by 52,594 square meters (sq.m.) in 2011, or a 49% year-on-year (y-o-y) growth. The rented area further rose by 13,694 sq.m. in the first quarter of 2012, or a 9% increase from the level at the end of 2011.
In 2011, Hemraj’s total revenue fell by 4% to Bt4,150 million from Bt4,322 million in 2010. Earnings before interest, tax, depreciation, and amortization (EBITDA) fell by 27% to Bt1,360 million in 2011. The drop in EBITDA was the result of less revenue from land transferred to customers in 2011 and the unrealized foreign exchange loss from GHECO-One Co., Ltd. (GHECO-One), Hemraj’s joint-venture power project. In the first quarter of 2012, Hemraj’s performance recovered noticeably. Total revenue surged by 196% over the same period last year to Bt1,676 million in the first quarter of 2012, underpinned by the growth in most business segments. Revenue from land sales rose to Bt1,149 million in the first quarter of 2012 from only Bt28 million in the first quarter of 2011. EBITDA in the first quarter of 2012 jumped by 634% y-o-y to Bt1,084 million. In short term, the demand for industrial land is expected to remain good, especially in the non-flooded area, the east of Thailand. The recovery in manufacturing activity after the severe flood continues to drive new investment, both for factory expansions and for relocations. The manufacturing utilization rate in the automotive industry picked up strongly to 93.6% during the first four months of 2012, from 31.8% in the fourth quarter of 2011 and 67.1% for the whole year of 2011. The value of projects applied for the Board of Investment (BOI) promotional privileges rose by 87% to Bt374 billion during the first five months of 2012. Although European debt crisis may negatively affect export and new foreign direct investment in Thailand, the impact is partly alleviated by the relocation of manufacturing plants of foreign investors, especially Japanese firms. Foreign investors continue to invest in Thailand because of the nation’s international trade promotion policies and good infrastructure, together with Thailand’s desirable geographic location.
Hemraj’s leverage level has risen since 2010. The total debt to capitalization jumped to 48.0% as of December 2011 from 32.4% in 2009, mainly due to finance investment in GHECO-One, a 660-megawatt-coal-fired power project. Hemraj’s equity investment in GHECO-One totaled to Bt4,500 million. GHECO-One is expected to be in operation and provide a sizeable stream of dividends for Hemraj from 2013 onwards. Hemraj plans a substantial capital expenditures worth about Bt15,000 million during 2012-2013. The expenditures include the expansion in industrial estates, expanding capacity of utilities services, continued investments in GHECO-One, and investments in property development and Small Power Producer (SPP) projects. TRIS Rating expects the company to maintain the debt to capitalization ratio, according to its stated policy, of approximately 50% when pursuing its growth strategy in the medium to long term. — End
Company Rating: Affirmed at A- Issue Ratings: HEMRAJ16OA: Bt1,500 million senior debentures due 2016 Affirmed at A- Up to Bt2,000 million senior debentures due within 2021 A- Rating Outlook: Stable
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