TRIS Rating Co., Ltd. has affirmed the company rating of Lalin Property PLC (LALIN) at “BBB” with “positive” outlook. The rating reflects the company’s cost competitiveness, prudent financial management, and acceptable track record in the middle- to low-income residential housing segment. The rating is constrained by its relatively small size compared with other rated developers, as well as the cyclical nature of the property development industry, and rising construction costs, resulting from increasing construction material prices and the recent minimum wage hike. 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 if the company could expand its revenue base and sustain its profit margins at the current level. LALIN will also need to keep its leverage level low despite the need for more future investment plans. In contrast, a significant drop in LALIN’s 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 2012. 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 of Bt2.7 million per unit in 2011. The average selling price for LALIN’s condominium was Bt2.3 million per unit. Sales of SDH units remained the major source of revenue, constituting 57% of total revenue in 2011. Sales of semi-DH and townhouse units contributed around 22% and 23% of total revenue, respectively. LALIN’s ability to control construction costs helps the company offer competitively-priced housing units with favorable profit margins.
TRIS Rating said, LALIN’s presales in 2011 rose sharply to Bt2,200 million, up by 25% from Bt1,754 million in 2010. The introduction of new housing brands and improving sales volume in some existing projects have helped raise LALIN’s presales and revenue during the past few years. LALIN’s total revenue increased from Bt1,693 million in 2010 to Bt1,861 million in 2011. However, revenue in the first quarter of 2012 dropped to Bt320 million, 9% lower than the same period of 2011. The drop was partly due to the severe flood in the last quarter of 2011. However, despite the fall in revenue, the value of presales in the first four months of 2012 remained acceptable at around Bt664 million. The gross profit margin has remained high, at 39%-40% of sales during 2010 through the first quarter of 2012. The operating margin was 24.58% in 2011, down from 27.29% in 2010 because of the expiration of the benefits from the government tax incentives. A higher debt level from more project expansion deteriorated its cash flow protection. The funds from operations (FFOs) to total debt ratio decreased to 41.49% in 2011 from 61.61% in 2010. Financial flexibility remained at a acceptable level, supported by undrawn committed credit facilities of Bt1,040 million, and the relatively low debt to capitalization ratio of 16.78% at the end of March 2012.
LALIN had four projects which were directly affected by the flood. The remaining value of the unsold units in these four projects was Bt1,083 million as of March 2012, or around 12% of the total remaining value of unsold units across all of LALIN’s projects. The company booked flood-related expenses of Bt10 million in the fourth quarter of 2011 while around Bt10 million was capitalized in the housing costs. Sales of units in the previously flooded projects started to recover in the first quarter of 2012, but maintained low compared with the pre-flood period.
Several developers, especially those who focused on low-rise projects, saw significant drops in revenues and profits in the last quarter of 2011. The government’s tax incentive scheme and zero-rate mortgage financing plans may not have a significant effect on the demand for residential property in the coming quarters due to the negative consumer sentiment. Global economic uncertainties, the threat of rising costs from the enactment of the minimum wage hike, and the elevated leverage levels of most property developers are the key downside risks for the industry. — End
Company Rating: Affirmed at BBB Rating Outlook: Positive
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