TRIS Rating has assigned the rating of “A” to the proposed issue of up to Bt1,500 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 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, the concerns over the political unrest leading to low consumer confidence and stagnated demand in residential property development, 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 December 2013 stood at Bt75.4 billion, ranked the largest among residential property developers listed on the Stock Exchange of Thailand (SET). The company’s revenue in 2013 at Bt25 billion was ranked the third largest. LH was established in 1983 by the Asavabhokhin family. As of March 2014, the Asavabhokhin family held 25% 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 75%-80% of total residential sales over the past six years. 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 presale records. LH’s presales in 2013 stood at around Bt30 billion, growing 17% year-on-year (y-o-y) from 2012. Presales during the first quarter of 2014 dropped by 12% y-o-y to Bt6,532 million.
As of March 2014, LH’s condominium backlog was Bt13.3 billion. The backlog of Bt1.8 billion is expected to be transferred during the remainder of 2014, another Bt6.7 billion in 2015, and the remaining Bt4.8 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 22% in 2012 and 25% in 2013. 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 December 2013 was 49.8%. LH’s covenant limits its liabilities (minus non interest-bearing debts) to equity ratio at 1.5 times. At the end of December 2013, the ratio stood at 1 time. TRIS Rating expects LH’s debt to capitalization ratio to stay at around 50%-54% for the next few 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 Bt39 billion at the end of December 2013. LH’s liquidity profile is acceptable. The ratio of funds from operations (FFO) to total debt was 20% in 2012 and 16% in 2013. For the next three years, TRIS Rating expects LH’s 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%.
LH153A: Bt3,100 million senior debentures due 2015 A LH156A: Bt2,000 million senior debentures due 2015 A LH159A: Bt2,500 million senior debentures due 2015 A LH163A: Bt3,500 million senior debentures due 2016 A LH169A: Bt3,500 million senior debentures due 2016 A LH172A: Bt500 million senior debentures due 2017 A LH174A: Bt3,500 million senior debentures due 2017 A Up to Bt1,500 million senior debentures due within 2016 A Rating Outlook: Stable
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