TRIS Rating has affirmed the company rating of Raimon Land PLC (RML) at “BBB-” with “stable” outlook. The rating reflects the company’s well-recognized brand name in the high-end condominium segment and improving financial profile after the company started transferring a large amount of its condominium backlog in 2012. These strengths are partly offset by the company’s business concentration risk since RML focuses mainly on the high-priced residential property segment and its revenue source depends on a limited number of projects. In addition, RML’s shareholders and key executives were changed several times in the past decade, causing discontinuation of new projects. The rating is also constrained by the slowdown in the domestic economy which may impact the demand in the high-end residential property segment in the short to medium term.
The “stable” outlook reflects the expectation that RML will be able to develop and deliver its residential projects as scheduled. RML’s credit upside would materialize if the company is able to prove the continuation and execution of new projects launched while keeping operating margin at 10%-15% and maintaining the debt to capitalization ratio below 60% on a sustainable basis. On the contrary, the rating and/or outlook could be revised downward if RML’s operating performance and/or financial position significantly deteriorated from the target levels.
RML was established by Mrs. Jurairat E. Bonithern in 1987 and listed on the Stock Exchange of Thailand (SET) in 1994. The company was under rehabilitation from 2000 through 2003. Its major shareholders have been changed several times. In February 2013, JS Asset Management Pte. Ltd. (JS) purchased a 24.98% stake in RML, and thus became the major shareholder. JS is a Singaporean investment holding company, owned entirely by Mr. Lee Chye Tek Lionel. Mr. Lee is also the owner and the group chief executive officer of Jit Sun Investment (Jit Sun), whose businesses include offshore oil and gas services, engineering and ship construction for the offshore and marine industries, a boutique hotel, and food & beverages.
RML mainly focuses on the high-end condominium segment, with selling prices ranging from Bt150,000 to Bt400,000 per square metre (sq.m.) (excluding Unixx South Pattaya). As of September 2016, RML had seven active condominium projects and one existing housing project, with a total project value of Bt42,000 million. The value of the remaining unsold units (including built and un-built units) was Bt6,400 million. At the end of September 2016, RML had a backlog worth Bt4,700 million, declining continuously from Bt15,000 million as of June 2013 and Bt7,000 million as of September 2015. The remaining backlog will be transferred to customers during the last quarter of 2016 through 2019.
RML’s presales have dropped consecutively in the past few years since the company focused on the completion and transfer of its backlog. Presales reached a peak of Bt5,662 million in 2012, and declined to Bt3,095 million in 2014 and Bt2,268 million in 2015. Presales during the first nine months of 2016 was Bt1,469 million. Its declining presales raise concern over its revenue recognition in the coming years.
RML’s revenue in 2015 was Bt5,081 million, a 23% y-o-y drop. Revenue during the first six months of 2016 decreased by 10% y-o-y to Bt2,705 million. With projects in prime locations and high down payments of 25%-40% of the selling prices, the company is expected to deliver the units in the backlog to customers as scheduled. As a result, total revenue for the full year of 2016 is expected to be around Bt5,000 million. However, due to the lower backlog, RML’s total revenue over the next three years might drop to around Bt3,000-Bt4,000 million per annum. Its revenue is partly secured by the backlog worth Bt1,900 million in 2017, Bt300 million in 2018, and Bt1,200 million in 2019.
RML’s profitability has improved since 2012, once the company started to deliver the finished condominium units in The River project that year and in the 185 Rajadamri project in 2014. The operating margin (as measured by operating income before depreciation and amortization as a percentage of sales) increased to 18%-20% during 2012-2013 and significantly improved to 26%-27% during 2014 through the first half of 2016. The net profit margin rebounded to around 10% during 2012-2013 and 18%-21% during 2014 through the first six months of 2016. RML’s operating margin is expected to decline over the next three years since the gross margin of uncompleted projects is lower than those of The River and the 185 Rajadamri projects.
RML’s financial leverage during 2011-2013 was weaker than those of most listed property developers. The debt to capitalization ratio ranged from 70% to 92% during 2011-2013. The ratio improved to 50% as of December 2014 and 33% as of June 2016. The transfer of finished units in the 185 Rajadamri project in the beginning of 2014 unloaded the company’s debt burden on its balance sheet. Going forward, its leverage is expected to rise since the company has to start acquiring new land plots and constructing new projects. However, RML’s debt to capitalization ratio is expected to stay below 60% despite its plan to invest more in residential projects and recurring-income assets over the next three years. RML’s liquidity is adequate. At the end of June 2016, RML’s cash on hand was around Bt270 million and undrawn long-term loan facilities were around Bt2,200 million. Its debt due over the next 12 months is around Bt1,700 million.
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