TRIS Rating has affirmed the company and senior debenture ratings of Hemaraj Land and Development PLC (HEMRAJ) at “A-”. At the same time, TRIS Rating has revised HEMRAJ’s rating outlook to “positive” from “stable”. The “positive” outlook reflects the company’s improved competitive position in the industrial estate property and a growing base of predictable income from power and utilities businesses. The “A-” ratings continue to reflect company’s proven record in industrial estate development and healthy level of profitability. These strengths are offset in part by the volatile nature of the industrial property market. The “positive” outlook reflects an improvement in HEMRAJ’s business profile and growing proportion of recurring income. The ratings could be upgraded if the company can maintain its debt to capitalization ratio in the range of 50% despite the huge investments it has in the pipeline. Deterioration in the company’s financial profile could cause its ratings or outlook to be revised downward.
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 April 2013, the Horrungruang family held 18.06% of HEMRAJ’s shares. In addition to selling industrial land and utilities services, the company also has investments in several electricity generating projects. During 2010-2012, property sales accounted for 60%-70% of the company’s total revenue. Recurring income, mainly from utilities services and rental income, made up about 30%-40% of total revenue.
HEMRAJ owns and operates seven industrial estates in Thailand. Its estates are located in Rayong, Chonburi, and Saraburi provinces with a total gross area of 39,109 rai. Among the 605 customers in HEMRAJ’s estates as of September 2013, 35% were in the automotive industry and 14% were in the consumer product industry. Approximately 75% of the remaining salable area of 7,526 rai, as of September 2013, was located in Rayong province.
HEMRAJ’s land sales in 2012 reached a record high. The company sold industrial land of 2,317 rai, a significant increase from 1,670 rai sold in 2011. The major driver for the impressive land sales was the expansion of manufacturing activities, especially in the auto industry. According to CB Richard Ellis’s report, total industrial land sales in Thailand rose to 9,528 rai in 2012, from 5,757 rai in 2011. HEMRAJ’s market position in the industrial estate development industry has improved during the past five years. CB Richard Ellis reported that HEMRAJ was ranked number one in terms of the amount of land sold in 2008 and in 2011. HEMRAJ’s average market share, in terms of land sold, was 26% of total industrial land sold in Thailand during 2008-2012 while the other top seller accounted for 27% of land sold during the same period. In the first nine months of 2013, HEMRAJ reported industrial land sales of 1,978 rai, the largest amount of land sold in Thailand for the period.
HEMRAJ’s recurring income continued rising. Income from the sales of utilities services and other service fees for 2012 were Bt2,170 million, up by 26.0% from the 2011 level. In the first nine months of 2013, HEMRAJ’s recurring income continued to grow, increasing by 20.4% year-on-year (y-o-y) to Bt1,912 million. This was due to the rising demand from existing customers and growing numbers of customer in HEMRAJ’s estates. Utility sales, which accounted for 60%-67% of total recurring income, increased by 19.7% in 2012 to Bt1,391 million and rose further by 13.6% y-o-y in the first nine months of 2013 to Bt1,174 million. The ready-built factory for rent segment, which made up 20%-25% of total recurring income, also showed impressive performance. The rented area increased by 76,771 square meters (sq.m.) in 2012, or a 48.3% y-o-y growth. The rented area climbed further by 48,476 sq.m. in the first nine months of 2013, or a 20.6% increase from the level at the end of 2012. In 2012, HEMRAJ expanded the rental business by developing warehouses for rent near the Eastern Seaboard and the Laem Chabang Deep Sea Port. The rented area of warehouses was 72,145 sq.m. as of September 2013.
In 2012, HEMRAJ’s total revenue jumped by 54% to Bt6,399 million, from Bt4,150 million in 2011. Earnings before interest, tax, depreciation, and amortization (EBITDA) rose by 91% to Bt3,054 million in 2012. The sharp increase in EBITDA was the result of sizeable industrial land sold and transferred to customers in 2012, as well as continuing growth in recurring income. HEMRAJ also benefited from rising prices of land in flood-free area after the massive flood in Thailand in late 2011. The gross margin of HEMRAJ’s industrial land sales rose to 46% in 2012, compared with a normal level of 42%-44%. Operating income before depreciation and amortization as percentage of total sales, rose to 37.9% in 2012, from 29%-33% in 2009-2011. The start-up of GHECO-One Co., Ltd. (GHECO-One), HEMRAJ’s joint-venture power project, in the third quarter of 2012, was another factor boosting HEMRAJ’s EBITDA in 2012. GHECO-One contributed equity income of Bt485 million in 2012, excluding unrealized gain from foreign exchange. In the first nine months 2013, HEMRAJ’s total revenue increased by 36.3% y-o-y to Bt6,320 million. The Operating income margin continued to widen, climbing to 41.1%, compared with 37.9% in 2012, due mainly to rising margin of land sales. EBITDA for the first nine months of 2013 was Bt3,185 million, a 53.6% increase over the same period last year. GHECO-One contributed equity income of Bt461 million, excluding unrealized loss from foreign exchange, in the first nine months of 2013. The income structure of HEMRAJ has strengthened with all key business segments performed well. EBITDA from sale of utilities services and income from power investments now makes up about 40%-50% of total EBITDA.
HEMRAJ’s leverage level has risen since 2010. The total debt to capitalization ratio jumped to 51.3% as of September 2013, from 32.4% in 2009, due mainly to debt-financed investment in GHECO-One, a 660-megawatt-coal-fired power project. Despite rising leverage, HEMRAJ’s liquidity and cash flow protection were satisfactory. The EBITDA interest coverage ratio was strong at 6.8 times in 2012 and 6.7 times in the first nine months of 2013. The fund from operation (FFO) to total debt ratio was healthy at 17.4% (non-annualized) in the first three quarters of 2013. HEMRAJ plans substantial capital expenditures, worth about Bt14,000 million, in 2013-2014. The expenditures include developing new plots of industrial estates, expanding rental business, plus investments in Small Power Producer (SPP) projects. HEMRAJ has a plan to sell some rented properties in order to keep the debt to capitalization ratio less than its stated policy, of approximately 50% in the medium term.
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