TRIS Rating has upgraded the company rating of Land & Houses PLC (LH) and the ratings of its existing senior unsecured debentures to “A+” from “A”. At the same time, TRIS Rating has assigned the rating of “A+” to LH’s proposed issue of up to Bt4,000 million in senior unsecured debentures. The outlook remains “stable”. The proceeds from the new debentures will be used to refinance existing debt and to fund LH’s expansion plans.
The upgrades reflect LH’s improved operating performance of its property development business and the rising contribution of income from its investments in associated companies. The ratings continue to reflect LH’s leading position in the residential property development market, strong brand franchise, and proven operational track record. The ratings also take into consideration the financial flexibility from portfolio of income-generating assets and marketable securities. However, the ratings are partially constrained by the cyclical and competitive nature of the property development industry, and LH’s moderate financial leverage. The “stable” outlook reflects the expectation that LH will be able to sustain its strong operating performance, acceptable financial position, and market competitiveness. Over the next three years, LH’s revenue is expected to be in the range of Bt27,000-Bt35,000 million per annum. Its interest-bearing debt to equity ratio should be kept lower than 1 times. LH’s ratings or outlook could be revised downward, should its operating performance or leverage significantly deteriorate from the current level. The rating upgrades are unlikely in the near term.
LH is one of Thailand’s leading property developers. The company’s total assets as of June 2014 stood at Bt85,000 million, ranked the largest among residential property developers listed on the Stock Exchange of Thailand (SET). The company’s revenue was Bt25,075 million in 2013 (third-largest among listed property developers) and Bt13,652 million (second-largest) in the first six months of 2014. LH was established in 1983 by the Asavabhokhin family. As of May 2014, the Asavabhokhin family held 30% 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), which contributed 70%-75% of total revenue 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 service. The company has succeeded in offering several SDH brands under various price ranges and customizing products to suit buyer affordability and characteristics for each project location. LH’s presales also increased over time. Presales in 2013 stood at around Bt30,000 million, growing 17% year-on-year (y-o-y) from 2012. Presales during the first half of 2014 increased by 5% y-o-y to Bt15,000 million.
As of June 2014, LH’s backlog was around Bt17,600 million. The backlog of Bt6,700 million is expected to be transferred during the second half of 2014, and the remainder will be transferred during 2015-2017. Over the next three years, TRIS Rating’s base case scenario expects LH’s revenues will range from Bt27,000 million to Bt35,000 million per annum. LH’s operating margin (operating income before depreciation and amortization, as a percentage of revenue) increased to 25% during 2013 through the first six months of 2014, up from 22% in 2012 and 18% in 2011. LH’s operating margin is expected to stay at least 20% for the next three years, factoring in pressures from rising construction costs, market competition, and overhead expenses to support business expansion.
LH’s debt to capitalization ratio at the end of December 2013 and June 2014 was 49.8% and 48.5%, respectively. LH’s bond covenant limits its interest-bearing debt to equity ratio at 1.5 times. At the end of June 2014, the ratio stood at 1 times. Despite its consecutive launch plans for condominium projects and aggressive dividend policy, LH’s debt to capitalization ratio is expected to remain below 50%, or the interest-bearing debt to equity at around 1 times. LH’s moderate leverage level is partly offset by its holdings of sound income-generating assets and a sizable portfolio of marketable securities. The fair value of LH’s investments in listed associates was Bt47,900 million at the end of June 2014. Equity income from its investments was around Bt2,000 million per annum in 2012 and 2013, up from around Bt1,000 million per annum during 2008-2011.
LH’s liquidity profile is acceptable. The ratio of funds from operations (FFO) to total debt was 16% in 2013 and during the first six months of 2014 (annualized with trailing 12 months). For the next three years, TRIS Rating expects LH’s FFO to total debt ratio to stay above 13%, while the EBITDA (earnings before interest, taxes, depreciation, and amortization) interest coverage ratio will stay above 5 times.
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