TRIS Rating Co., Ltd. has affirmed the company rating of Land & Houses PLC (LH) at “A”. At the same time, TRIS Rating has affirmed the ratings of LH’s senior secured debentures and senior debentures at “A+” and “A”, respectively. The outlook remains “stable”. The ratings reflect LH’s sustainable leadership position in the Thai residential property market, its proven record and well-recognized brand name in the market. The ratings also take into consideration an experienced management team, and the company’s
solid financial position. However, these strengths are partially offset by slowing demand for residential
property as a result of moderating consumer confidence, increasing interest rates, and rising construction costs.
The “stable” outlook reflects an expectation that LH will be able to maintain its leading position, product quality, and strong brand recognition in the property market. With cost efficiencies and a faster rate of construction, the company is expected to sustain its favorable profit margin, even in light of weak market conditions.
TRIS Rating reported that LH is Thailand leading property developer, developing single detached
house (SDH), townhouse and condominium projects in the Bangkok Metropolitan Area and up country. During the past three years, more than 90% of LH’s revenue came from SDH sales, with an average price of Bt5.70 million per unit. With the success of LH’s “pre-built” concept, the company can shorten construction times and generate cash faster than its competitors, resulting in strong cash flow protection.
In 2005, LH’s operating performance was satisfactory. Approximately 4,000 housing units with an average selling price of Bt5.62 million per unit were transferred to homebuyers. Residential property sales were Bt22,745 million, ranking first among real estate developers. LH’s profitability in 2005 remained favorable, but declined slightly as the operating profit margin was about 25%, which was 4% lower than in 2004. The drop was due to the rises in construction material costs, labor costs, and oil prices. The company’s debt-to-capitalization ratio stood at 36.8%, a slight increase from 2004, but still at an acceptable level.
In 2006, the company plans to launch 12 new SDH and townhouse projects, with unit prices ranging
from Bt3 million-Bt5 million. In addition, LH plans to develop a serviced apartment project and a rental
home resort project to generate more recurring income. Construction of the serviced apartment and home
resort is expected to be completed by 2007. However, the contribution from recurring income from these two projects will be relatively small compared with residential sales. The company also diversified into
the banking industry by holding a 43% stake in Land and Houses Retail Bank PLC (LH Bank). LH Bank will initially focus on housing loans, and is expected to support LH’s core business since more financing options
can be offered to increase customer’s affordability. Since LH Bank has just commenced operation, the
success of LH Bank and its impact to LH remain to be seen.
TRIS Rating anticipates that competition in the housing market will be moderate in 2006 as less housing units will be offered to the market while demand continues to stabilize. 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 industry and rising interest rates will likely soften the housing demand growth rate. A current political situation may unfavorably affect the overall residential property market as homebuyers may delay decisions to buy new houses. However, the situation is expected to resolve in the medium term and the impact on the residential market should be temporary. After that, housing demand, especially for the middle- to low-income priced segment of the market, is expected to resume as normal. — End
Land & Houses PLC (LH)
Company Rating: Affirmed at A
Issue Ratings:
LH06DA: Bt1,500 million senior secured debentures due 2006 Affirmed at A+
LH073A: Bt1,000 million senior debentures due 2007 Affirmed at A
LH083A: Bt1,000 million senior debentures due 2008 Affirmed at A
LH084A: Bt1,500 million senior debentures due 2008 Affirmed at A LH094A: Bt1,500 million senior debentures due 2009 Affirmed at A
LH104A: Bt2,000 million senior debentures due 2010 Affirmed at A
Rating Outlook: Stable