TRIS Rating has affirmed the company rating of Lalin Property PLC (LALIN) at “BBB+” with “stable” outlook. The rating reflects LALIN’s improved competitive position in the low-rise housing segment, as well as the expectation that the company’s conservative expansion into the condominium segment will strengthen its revenue base, and diversify its product line but add only a moderate amount of additional leverage. 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 business size compared with other rated developers, as well as the cyclical and competitive nature of the property development industry. The “stable” outlook reflects the expectation that LALIN will be able to maintain its financial strength and gradually adjust its product portfolio to match the changes in the industry. Over the next three years, revenue is expected to stay at around Bt2,500 million per year while the debt to capitalization ratio should hold at 30%-40%. LALIN’s rating and/or outlook could be lowered if the company’s operating performance drops significantly from the current level. On the other hand, the rating could be upgraded if the company can increase its market share and maintain its sound financial status.
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 2014. 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 2013. Sales of low-rise housing units remained the major source of revenue, constituting over 90% of total revenue in 2013. LALIN began introducing condominium projects in 2011. The average selling price for LALIN’s condominiums was Bt1.9 million per unit.
At the end of March 2014, LALIN had 40 existing projects available for sale with remaining value of approximately Bt13,000 million. The company has a backlog worth around Bt900 million that is expected to be transferred to customers in 2014. Around 58% of the backlog are housing projects and the rests are condominium projects. LALIN’s ability to control construction costs helps the company offer competitive price housing units with high gross profit margins. LALIN’s gross profit margin has ranged from 38%-40% over the past several years.
LALIN’s presales in 2013 were Bt2,668 million, rising by 10% from 2012. The growth in presales came mainly from housing projects in Bangkok and upcountry. Housing presales accounted for 83% of total presales in 2013. However, condominium presales in 2013 dropped by 11% compared with 2012, since no new condominium projects were launched in 2013.
LALIN’s total revenue in 2013 increased by 15% y-o-y to Bt2,323 million. Around 10% of revenue came from “LANCEO CRIB Sriracha-Bowin” project, its first project in Chonburi province. In the first three months of 2014, LALIN’s revenue slightly increased, rising to Bt656 million from Bt624 million in the same period last year. Under TRIS Rating’s base case, forecast, LALIN’s revenues are expected to range from Bt2,200-Bt2,700 million per annum over the next three years. The forecast assumes that the company will launch new projects worth Bt4,000-Bt5,000 million per annum.
LALIN’s gross profit margin slightly decreased to 38.5% in the first three months of 2014. However, the gross profit margin remains high compared with most of the SET-listed property developers. During 2011 through the first three months of 2014, the operating margin (operating income before depreciation and amortization as a percentage of sales) was 23%-26%. The total debt to capitalization ratio increased to around 31% in 2013 and at the end of March 2014, up from 24.42% in 2012. Leverage rose because LALIN is developing more residential property projects. Despite the rise in leverage, liquidity remains acceptable, supported by undrawn committed credit facilities of Bt2,150 million as of March 2014 and funds from operations (FFO) of Bt200-Bt350 million per annum.
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