TRIS Rating has upgraded the company rating of Lalin Property PLC (LALIN) to “BBB+” from “BBB”. The outlook is revised to “stable” from “positive”. The rating upgrade reflects LALIN’s improved competitive position in low-rise housing projects, as well as the expectations that the company’s conservative expansion strategy in condominium segment will strengthen its revenue base and diversity, while adding only moderate pressure to the leverage level. The rating continues to reflect LALIN’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 cyclical and competitive nature of the property development industry, plus concerns over labor shortage and rising land and construction costs. The “stable” outlook reflects the expectation that LALIN will be able to maintain its competitive position and gradually adapt product portfolio to match the dynamic changes in the industry. In light of the need for more debt-funded business expansion over the next three years, the company’s interest bearing debts to equity ratio is not expected to be higher than 0.6 times for sustained periods.
LALIN was established in 1988 and listed on the Stock Exchange of Thailand (SET) in 2002. Mr. Taveesak Watcharakkawongse and Mr. Chaiyan Chakarakul, the major shareholders, held 63% of the company’s total shares as of April 2013. The company is mainly engaged in the development of low-rise residential housing projects, offering single-detached house (SDH), semi-detached house (semi-DH), and townhouse units, with an average price of Bt2.7 million per unit in 2012. Sales of low-rise housing projects remained the major source of revenue, constituting over 90% of total revenue in 2012. LALIN began introducing condominium projects in 2011. The average selling price for LALIN’s condominium was Bt1.9 million per unit.
At the end of March 2013, LALIN had 34 existing projects available for sale with remaining value of approximately Bt9,700 million. The company had condominium backlog worth around Bt500 million. Around 26% of the condominium backlog is expected to be transferred in 2013, while the rest is expected to be transferred in 2014. LALIN’s ability to control construction costs helps the company offer competitively-priced housing units with high gross profit margins at around 40% over the past several years.
LALIN’s presales in 2012 were Bt2,436 million, rising by 12% from 2011. The growth in presales was partly due to good responses to new condominium projects launched in 2012. Condominium presales accounted for 20% of total presales in 2012. However, housing presales in 2012 dropped by 10%, compared with 2011 due to negative impacts from the flood in late 2011, which continued to early 2012. In the first three months of 2013, total presales rose to Bt940 million from Bt360 million in the same period of 2012 due to the absence of the flood impacts and the introduction of new housing brands.
LALIN’s total revenue in 2012 decreased slightly to Bt1,720 million from Bt1,861 million in 2011 due to the post-flood impact in early 2012 and the delays in the transfer of finished units in Levo condominium project. However, revenue in the first quarter of 2013 sharply jumped to Bt624 million, 95% higher than the same period of 2012. The growth in revenue was because sales of housing units recovered from the flood. TRIS Rating’s base case assumes LALIN’s revenue at Bt2,000 million in 2013, up from Bt1,700-Bt1,900 million during 2010-2012. In 2014 and 2015, revenues are expected to be in a range of Bt2,000-Bt2,500 million per annum due to higher contribution from condominium projects.
LALIN’s financial profile remains strong, compared with most of the SET-listed property developers. During 2011 through the first three months of 2013, the company’s gross profit margin has remained high, at 40%, while operating margins (operating income before depreciation and amortization as a percentage of sales) was 23%-26%. LALIN’s operating margins are expected to stay at around 23%-24% in the next three years. Total debt to capitalization ratio was 23.78% as of March 2013, up from 16.11% in 2011 due to the development of more condominium projects. However, liquidity remained acceptable, supported by undrawn committed credit facilities of Bt1,550 million as of March 2013 and expected funds from operations of Bt350-Bt400 million per annum. ? Lalin Property PLC (LALIN) Company Rating: BBB+ Rating Outlook: Stable
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