TRIS Rating has assigned the rating of “A” to the proposed issue of up to Bt3,500 million in senior debentures of Land & Houses PLC (LH). At the same time, TRIS Rating has affirmed the company rating of LH and the ratings of its existing senior debentures at “A”. The outlook remains “stable”. The proceeds from the new debentures will be used to refinance debts and fund business expansion. LH’s ratings reflect the company’s leading position in the residential property development market, a strong brand franchise, and a proven management competency. The ratings also take into consideration financial flexibility from portfolio of income-generating assets and marketable securities. However, the ratings are partially constrained by the cyclical nature of the property development industry, pressures from competition, and LH’s high financial leverage. The “stable” outlook reflects an expectation that LH will sustain its market competitiveness with product offerings that match market dynamism. The ratings could be negatively impacted should the company’s debt to capitalization ratio rise to stay above 50% for a sustained period.
LH is one of Thailand’s leading residential property developers. The company was established in 1983 by the Asavabhokhin family. As of February 2013, the Asavabhokhin family held 31% of the company’s shares, followed by the Government of Singapore Investment Corporation (GIC) at 16%. LH’s core products are single detached houses (SDHs), which contribute around three quarters of total sales. LH’s ratings are underscored by its strong residential brand equity with premium market perceptions in terms of product quality and after-sale services. The company has succeeded in offering several SDH brands under various price ranges and customizing products to suit buyer affordability and characteristics for each location. LH’s market strength is also underscored by the company’s respectable sales records, ranging between Bt16-Bt25 billion per annum over the past five years.
As of year-end 2012, LH’s condominium backlog was Bt5.6 billion. The backlog value of Bt2.4 billion is expected to be transferred in 2013 and the remaining Bt3.2 billion will be transferred in 2014. Over the next three years, TRIS Rating expects LH’s baseline revenues at Bt20 billion per annum. LH’s operating margin (operating income before depreciation and amortization as a percentage of revenue) was 21.9% in 2012. LH’s operating margin is expected to stay around 18%-19% in the medium term. The margin could be lower in the short term from rising labour costs, as well as higher overhead costs to support business expansion.
LH’s leverage level is considered high for its rating category, but is partly offset by the holding of sound income-generating assets and sizable marketable securities. LH’s debt to capitalization ratio as of year-end 2012 stood at 46.2%. LH’s covenant limits its liabilities to equity ratio at 1.5 times. At the end of 2012, the ratio stood at 0.97 times. TRIS Rating expects LH’s leverage to remain quite high for the next few years on the back of consecutive launch plans for high-rise projects and aggressive dividend policy.
During the year 2012, LH received around Bt1.1 billion (net of reinvested proceeds) from the set up of Land and Houses Freehold and Leasehold Property Fund. LH’s liquidity profile is acceptable. The company’s financial flexibility is enhanced by investments in associated firms with the estimated fair values at Bt38.6 billion as of year-end 2012.
Company Rating: A Issue Ratings: LH149A: Bt900 million senior debentures due 2014 A LH153A: Bt3,100 million senior debentures due 2015 A LH159A: Bt2,500 million senior debentures due 2015 A Up to Bt3,500 million senior debentures due within 2016 A Rating Outlook: Stable
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