TRIS Rating Co., Ltd. has affirmed the ratings of senior debentures (LALI077A and LALI078A) of Lalin Property PLC (LALIN) at "BBB+" with "stable" outlook. The ratings reflect LALIN's record in the middle income housing market, its capability in controlling operating costs, and its strong financial position. These strengths are partially offset by LALIN's relative dependence on its owner to run the company, the slowing demand for residential housing as consumer confidence decreases and interest rates rise. In addition, increasing construction material costs and higher fuel prices are expected to put more pressure on developers' margins.
While the "stable" outlook reflects the expectation that LALIN will maintain its sales performance and profitability despite increasing construction material costs. The company is expected to conservatively manage its liquidity and leverage while pursuing business expansion.
TRIS Rating reported that LALIN is a mid-sized housing developer with primary product focus on the middle income market offering prices from Bt2 million to Bt6 million per unit. The company's strategy is to offer better prices for its products than its competitors in similar locations, making LALIN's products attractive. Lalin's cost advantages stem from its ability to control construction costs as well as selling general and administration expenses (SG&A) combined with its 2004 strategy to build housing stock. For the first six months of 2005, the company transferred approximately 500 housing units to customers, up 12% compared with the same period last year. Sales in the first half of 2005 were Bt1,305 million, an increase of 15% from the same period last year. The company reported revenue of Bt2,335 million in 2004, down from Bt3,130 million in 2003. Though LALIN's sales in 2004 were below expectations, its gross margin remained strong at 45.1% in 2004 and 44.9% for the first six months of 2005. Total debt increased from Bt987 million at the end of December 2004 to Bt1,228 million at the end of June 2005.
TRIS Rating said that competition in the housing market in 2005 and 2006 is expected to intensify as there are more housing units on offer at a time when demand is expected to be softer than in 2004. Increasing construction material prices together with rising interest rates will put more pressure on developers' margins. The tighter lending policies adopted by commercial banks will likely limit the expansion of the industry while rising interest rates will likely soften housing demand, said TRIS Rating. - End
Lalin Property PLC (LALIN) Issue Ratings: LALI077A: Bt400 million senior debentures due 2007 Affirmed at BBB+ LALI078A: Bt400 million senior debentures due 2007 Affirmed at BBB+ Rating Outlook: Stable