TRIS Rating affirms the company rating of Lalin Property PLC (LALIN) at “BBB+” with “negative” outlook. The rating reflects LALIN’s cost competitiveness, prudent financial management, and long experience in the middle-to-low-income residential housing segment. The rating is constrained by LALIN’s weaker competitive position, as reflected by a drop in market share, while its financial leverage is on the rise. The rating also takes into consideration the relatively high level of household debts nationwide, coupled with the current slowdown in the domestic economy which may impact the demand in the housing market in the short to medium term.
Despite its improving sales in the first half of 2016, TRIS Rating maintains the “negative” outlook for LALIN’s rating. The “negative” outlook reflects LALIN’s weaker market position compared with its rated peers, while financial leverage is on the rise. A further decline in LALIN’s operating performance relative to peers and/or a continued rise in financial leverage 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 leverage does not increase further.
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 54% of the company’s total shares as of March 2016. 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 source of revenue, constituting 80%-95% of total revenue annually during the past three years. LALIN developed only a few condominium projects. The company expanded upcountry in late 2012. Its upcountry projects are mainly located near industrial estates in the Eastern region.
As of June 2016, LALIN had 44 existing projects available for sale. Across the entire project portfolio, around 80% of the total project value was residential projects located in Bangkok and the vicinity. The rest was upcountry projects. The value of the unsold units was approximately Bt18,000 million (including built and un-built units). Around 65% of the unsold value was in the projects in Bangkok and the vicinity, while the remainder of the unsold units was in the upcountry projects. At the end of June 2016, LALIN had a backlog worth around Bt600 million. Nearly 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 2016.
LALIN’s revenue in 2015 dropped by 12% year-on-year (y-o-y) to Bt2,084 million. Revenue from the housing projects grew by 5% y-o-y, while revenue from the condominium projects shrank. In addition, revenue from the projects in Bangkok and the vicinity decreased by 17% y-o-y. Revenue during the first six months of 2016 rose by 63% y-o-y to Bt1,303 million. SDH, semi-DH, and townhouse projects located in Bangkok and the vicinity as well as upcountry generated the revenue growth. The growth was driven partly by the government tax incentives in a transfer fee which expired in April 2016. LALIN’s revenue over the next three years is expected to be in a range of Bt2,500-Bt3,000 million per annum.
LALIN’s operating profit margin (operating income before depreciation and amortization as a percentage of sales) held at 24%-25% during 2013 through the first half of 2016. Over the next three years, LALIN’s operating profit margin may decline but it is expected to stay above 20%, taking into consideration the intense market competition and the overhead needed to support LALIN’s expansion plans.
LALIN’s debt to capitalization ratio is rising. The ratio stood at 37% at the end of June 2016, the highest level in the past several years. Leverage rose along with its inventory level. LALIN launched several new residential projects to boost sales since sales in the old projects were relatively slow. However, sales in the new projects were also impacted by the current slowdown in the domestic economy since the company targets middle- to low-income homebuyers. Given the expansion plans for the next three years, LALIN’s leverage could rise further. The funds from operations (FFO) to total debt ratio was 21%-24% during 2014 through the first six months of 2016. During the business expansion, LALIN is expected to keep the FFO to total debt ratio above 20%. The earnings before interest, taxes, depreciation, and amortization (EBITDA) interest coverage ratio improved to 15 times in the first half of 2016 from 11 times in 2015 and 8 times in 2014. LALIN’s liquidity remains adequate. LALIN has debts of Bt1,018 million due over the next 12 months while cash on hand and unused committed credit facilities at the end of June 2016 was around Bt2,000 million.
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 2016, 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.