TRIS Rating has assigned the rating of “A” to the proposed issue of up to Bt4,000 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 for debt refinancing and business expansion. The ratings reflect the company’s leading position in the residential property development market, strong brand franchise, and proven operational track record. 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 construction costs and market competition, and LH’s moderate 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%, or total debt to equity above 1 time, for sustained periods.
LH is one of Thailand’s leading property developers. The company’s total assets as of September 2013 stood at Bt72.9 billion, ranked the largest among residential property developers listed on the Stock Exchange of Thailand (SET). The company’s revenue in the first nine months of 2013 at Bt18.7 billion was ranked the third largest. LH was established in 1983 by the Asavabhokhin family. As of July 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 (SDH), contributing 60%-75% of total sales over the past five years. Meanwhile, SDHs pricing Bt3-Bt7 million per unit comprised 40%-50% of LH’s total sales. LH’s very strong business profile is underscored by its 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 also reflects the company’s respectable sale records. LH’s sales in 2013 stood at around Bt30 billion, growing 17% year-on-year (y-o-y) from 2012.
At the end of 2013, LH’s condominium backlog was Bt12.5 billion. The backlog of Bt2.4 billion is expected to be transferred in 2014, another Bt5.9 billion in 2015, and the remaining Bt4.2 billion in 2016. Over the next three years, TRIS Rating’s base-case scenario expects LH’s revenues in a range of Bt24-Bt27 billion per annum. LH’s operating margin (operating income before depreciation and amortization as a percentage of revenue) was 24.7% in the first nine months of 2013 and 21.9% in 2012. LH’s operating margin is expected to stay at least around 18%-19% for the next three years, factoring in pressures from rising construction costs, market competition, as well as overhead expenses to support business expansion.
LH’s moderate leverage level is partly offset by the holding of sound income-generating assets and sizable marketable securities. LH’s debt to capitalization ratio at the end of September 2013 was 50.6%. LH’s covenant limits its liabilities (minus non interest-bearing debts) to equity ratio at 1.5 times. At the end of September 2013, the ratio stood at 1.03 times. TRIS Rating expects LH’s debt to capitalization ratio to stay at around 45%-50% for the next three years, considering consecutive launch plans for high-rise projects and aggressive dividend policy. The company’s financial flexibility is enhanced by a portfolio of investments in listed associates with fair value at Bt44.1 billion at the end of September 2013. LH’s liquidity profile is acceptable. Long-term debts maturing over the next three years are Bt5-Bt10 billion per annum. For the next three years, TRIS Rating expects LH’s funds from operations (FFO) to total debt to stay above 10%, while EBITDA (earnings before interest, taxes, depreciation, and amortization) interest coverage to stay above 5 times. The ratings do not reflect potential credit upside from asset divestments, given uncertainties in timing and valuation. In addition, the credit upside expected from improving capital structure could be neutralized if LH’s business expansion is expected to raise the debt to capitalization back to the range of 40%-50%.
TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand Copyright 2014, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.