TRIS Rating has assigned the company rating of Golden Land Property Development PLC (GOLD) at “BBB” with “stable” outlook. The rating reflects GOLD’s improving operating performance and its growing brand recognition in the residential property market after a change in its major shareholder and key executives in late 2012, and its recurring income base from rental assets. However, these strengths are partially offset by GOLD’s relatively high financial leverage from business expansion and its low operating profit margin. The rating also takes into consideration the cyclical and competitive nature of the property development industry, plus concerns over the slower-than-expected growth in the domestic economy and high household debt levels.
The “stable” outlook reflects the expectation that GOLD will sustain its good operating performance over the next three years. GOLD’s debt to capitalization ratio is expected to decrease once the company subleases its office building to the real estate investment trust (REIT) as scheduled.
GOLD’s rating could be upgraded if there is more proven execution in residential property market under the current management team. Improving profitability and lower debt to capitalization ratio at around 55% or the interest-bearing debt to equity ratio at around 1.2 times on a sustainable basis would be positive factors for the rating. On the contrary, the rating and/or the outlook could be revised downward if GOLD’s operating performance and financial profile are significantly lower than the current levels.
GOLD was established in 1978 by the Srivikorn family, and was listed on the Stock Exchange of Thailand (SET) in 1994. GOLD’s major shareholders and key executives have changed several times during the past decades. In November 2012, Univentures PLC (UV) acquired a 50.64% stake in GOLD and became the major shareholder. As of March 2015, UV held a 55.73% stake in GOLD.
GOLD mainly focuses on the middle-income segment of the housing market. Its products include single detached houses (SDH), semi-detached houses (semi-DH), and townhouses, with unit prices ranging from Bt2 million to Bt10 million. GOLD’s residential property project portfolio now extends to the high-end housing segment after it acquired Krungthep Land PLC (KLAND) in late 2014. At the end of June 2015, GOLD had 17 existing projects, with the total project value worth Bt38,000 million. The value of the remaining unsold units (including built and un-built units) across GOLD’s project portfolio was around Bt14,000 million. Around 70% of the remaining value was in KLAND projects; the rest was in GOLD projects.
After changing the major shareholder and the key executives in late 2012, GOLD has expanded aggressively. The company had launched 10 projects from late 2013 through the first half of 2015. GOLD’s total revenue jumped to Bt4,052 million in 2014 from around Bt1,600 million per annum during 2012-2013. Revenue during the first half of 2015 leaped to Bt3,642 million from Bt1,271 million during the same period of 2014. Residential sales generated revenue of Bt3,000 million in 2014 and in the first six months of 2015, or around 80% of total revenue. Rental income from rental properties, office buildings and serviced apartments, amounted to around Bt1,000 million per year, or around 20% of total revenue. Over the next three years, GOLD’s total revenue is expected to reach Bt10,000 million per annum, as the company plans to launch several new projects in order to pursue the growth strategy.
GOLD’s operating margin, as measured by operating income before depreciation and amortization as a percentage of sales, improved to 12%-14% during 2013 through the first six months of 2015. The net profit margin rebounded to the positive figure at 8% of total revenue in 2014 and 5% in the first half of 2015. However, GOLD’s profitability remains relatively lower than most leading property developers. Because of a slowdown in the residential property market and high household debt levels, GOLD is challenged to sustain its operating profit margin above 12% over the next three years.
GOLD’s debt to capitalization ratio was 61% as of December 2014 and 60% as of June 2015, up from 47% as of December 2013. Its higher financial leverage was due mainly to aggressive project expansion and borrowing loan to acquire KLAND. GOLD’s financial leverage is expected to be lower than the current level over the next three years as the company plans to sublease its office building, Sathorn Square, to a REIT. Cash from the REIT transaction will be used to repay debts of around Bt4,300 million. The REIT transaction will partly alleviate the debt financing. With its business expansion plan, GOLD’s total debt to capitalization ratio is expected to stay below 60%. GOLD’s cash flow protection improved recently. The ratio of funds from operations (FFO) to total debt was 4% in 2014 and 5% (annualized with trailing 12 months) during the first six months of 2015.
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 2015, 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, without the prior written permission of TRIS Rating Co., Ltd. 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.