TRIS Rating has affirmed the company rating of Lalin Property PLC (LALIN) at “BBB+” and has revised downward LALIN’s rating outlook to “negative” from “stable”. The negative outlook reflects LALIN’s lower-than-expected operating performance while its leverage is on the rise. LALIN’s shrinking market share over the past several years implies a weaker competitive position compared with its rated peers.
The rating continues to reflect LALIN’s competitive cost position, its relatively low financial leverage compared with rated peers, and its long experience in the middle- to low-income residential housing segment. The rating also takes into consideration the cyclical and competitive nature of the property development industry, plus concerns over a slowdown in the domestic economy and a high level of household debt nationwide.
The “negative” outlook reflects LALIN’s lower-than-expected operating performance. Revenue is lower than the target of Bt2,500-Bt3,000 million while financial leverage is on the rise. A further decline in LALIN’s operating performance and financial profile could lead to a rating downgrade over the next 12-18 months. The outlook could be revised back to stable should LALIN’s sales performance improve and if leverage does not exceed the current level.
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 March 2015. The company is mainly engaged in the development of low-rise housing projects, offering single-detached house (SDH), semi-detached house (semi-DH), and townhouse units. Its product prices are generally in the range of Bt2 million-Bt5 million per unit. Low-rise housing units remained LALIN’s major sources of revenue, constituting 80%-95% of total revenue annually during the past three years. LALIN started its first condominium project in late 2011. The average selling price for LALIN’s condominium is Bt1.9 million per unit. LALIN has expanded to upcountry in late 2012. Its upcountry projects are mainly located near industrial estates in the Eastern region.
As of June 2015, LALIN had 41 existing projects available for sale. Across the entire portfolio, around 80% of total project value was the residential projects located in Bangkok and the vicinity. The rest was in projects upcountry. The value of the unsold units was approximately Bt15,000 million (including built and un-built units). Around 60% of the unsold value was in projects in Bangkok and the vicinity, while the remainder of the unsold units was in the upcountry projects. At the end of June 2015, LALIN had a backlog worth around Bt700 million. Almost all of the backlog units are in the housing projects. The units in the backlog are expected to be transferred to customers during the rest of 2015.
LALIN missed its revenue targets of Bt2,500-Bt3,000 million during the past two years. Revenue stayed at Bt2,300 million per annum during 2013-2014. Revenue during the first six months of 2015 was Bt798 million, declining by 39% year-on-year (y-o-y). The drop came because revenue from housing and condominium projects decreased by 15% y-o-y and 89% y-o-y, respectively. In addition, revenues from projects in Bangkok and the vicinity, as well projects upcountry, dropped during the first half of 2015.
LALIN’s operating profit margin (operating income before depreciation and amortization as a percentage of sales) declined to 21% in the first six months of 2015 from 24%-25% during 2013-2014. However, the ratio remained stronger than its peers. LALIN’s operating profit margin is expected to stay at around 20% over the next three years, taking into consideration the intense market competition and the overhead needed to support LALIN’s expansion plans. The total debt to capitalization ratio stood at 35% at the end of June 2015, the highest level in the past several years. Leverage rose because LALIN is expanding more residential projects. Given its expansion plans for the next three years, LALIN’s leverage could rise further.
Due to rising debt level and relatively flat operating performance, LALIN’s fund from operation (FFO) to total debt ratio declined to 11% (annualized with trailing 12 months) during the first half of 2015, from 21% in 2014 and 28% in 2013. The earnings before interest, taxes, depreciation, and amortization (EBITDA) interest coverage ratio was 6-7 times during 2014 through the first six months of 2015, down from 15 times in 2013 and 8 times in 2012. Liquidity remains acceptable. Its debt due over the next 12 months is Bt808 million while cash on hand and unused committed credit facilities at the end of June 2015 was around Bt2,100 million.
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