TRIS Rating has assigned the rating of “A+” to the proposed issue of up to Bt8,000 million in senior unsecured 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 unsecured debentures at “A+”. The outlook remains “stable”. The proceeds from the new debentures will be used to refinance existing debentures maturing in September 2016 and to fund LH’s business operation.
The ratings 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 derived from LH’s portfolio of income-generating assets and marketable securities. However, the ratings are partially constrained by the relatively high level of household debts nationwide coupled with the slowdown in the domestic economy which may impact the demand in the housing market in the short to medium term.
The “stable” outlook reflects the expectation that LH will maintain its strong operating performance, acceptable financial position, and competitive position. Over the next three years, LH’s revenue is expected to range from Bt25,000-Bt30,000 million per annum. The interest-bearing debt to equity ratio should be kept below 1 times.
LH’s ratings and/or outlook could be revised downward should its operating performance or financial position significantly deteriorate from the current levels. The ratings and/or outlook could be revised upward should its capital structure improve significantly from the current level and its operating performance remains strong comparable with its listed peers.
LH is one of Thailand’s leading property developers. The company’s total assets as of June 2016 stood at Bt97,000 million, making LH the largest residential property developer listed on the Stock Exchange of Thailand (SET) in terms of asset size. Its revenue was Bt26,260 million in 2015 and Bt15,433 million in the first six months of 2016, ranking LH as one of the three largest listed property developers based on revenue. As of August 2016, the Asavabhokhin family held 31% 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 65%-70% of total revenue over the past five years. LH’s very strong business profile is underscored by its brand equity. LH’s products are perceived as premium residential properties in terms of product quality and after-sale service. The company offers several SDH brands across a number of price ranges. LH customizes products to suit buyers’ affordability and characteristics for each project location. LH’s presales dropped by 21% year-on-year (y-o-y) to Bt24,612 million in 2015. Presales during the first half of 2016 was Bt11,311 million, a small growth from the same period of 2015.
As of June 2016, LH’s backlog was Bt17,540 million. The backlog worth Bt6,000 million and Bt11,000 million is expected to be transferred to customers during the remainder of 2016 and in 2017, respectively. TRIS Rating’s base case scenario expects LH’s revenues will range from Bt25,000 million to Bt30,000 million per annum over the next three years. LH’s operating profit margin (operating income before depreciation and amortization, as a percentage of revenue) ranged from 22%-25% during 2012 through the first six months of 2016. Its operating profit margin is expected to stay above 20% over the next three years, factoring in pressures from rising land costs, market competition, and overhead expenses needed to support LH’s expansion plans.
LH’s debt to capitalization ratio was 47% as of December 2015 and 45% as of June 2016. LH’s bond covenant limits its interest-bearing debt to equity ratio at 1.5 times. At the end of June 2016, the ratio stood at 0.8 times. Despite its plan to invest in recurring-income assets, LH’s debt to capitalization ratio is expected to remain below 50%, or the interest-bearing debt to equity ratio at below 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 Bt55,000 million as of June 2016. Equity income from its investments was Bt2,000-Bt2,400 million per annum during 2012-2015.
LH’s liquidity profile is acceptable. The ratio of funds from operations (FFO) to total debt ranged from 14%-16% during 2013-2015, and increased to 19% (annualized with trailing 12 months) in the first six months of 2016. The EBITDA (earnings before interest, taxes, depreciation, and amortization) interest coverage ratio was 6-8 times during past five years. Over the next three years, TRIS Rating expects LH’s FFO to total debt ratio will stay around 15%, while the EBITDA interest coverage ratio will stay above 5 times.
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