TRIS Rating Co., Ltd. has affirmed the company rating of Lalin Property PLC (LALIN) at “BBB” with “stable” outlook. The rating reflects LALIN’s cost competitiveness, prudent financial management, and its acceptable track record in the middle- to low-income residential housing segment. The rating also takes into consideration the improvement in the company’s performance during 2008-2009, but its revenue still stays lower than the record of Bt1,900-Bt3,100 million per annum during 2002-2006. However, these strengths are offset by an uncertain political situation in Thailand and the cyclical nature of the property development industry.
The “stable” outlook reflects the expectation that LALIN will be able to maintain acceptable profit margins and cash flow protection despite the need for more future investment than over the past three years. The company’s ability to boost operating performance in the medium term, clear slow-moving inventory, and keep a financial leverage low will be positive for the rating or outlook.
TRIS Rating reported that LALIN is a medium-sized housing developer. It was established in 1988 and listed on the Stock Exchange of Thailand (SET) in November 2002. Mr. Taveesak Watcharakkawongse and Mr. Chaiyan Chakarakul, the major shareholders, held 63% of the total shares as of August 2009. The company has focused on low-rise housing projects and offered single-detached houses (SDHs), semi-detached houses (semi-DHs), and townhouses, with an average price in 2009 of Bt2.6 million per unit. During the last three years, SDHs had been the major source of revenue, constituting about 53% of total revenue. Semi-DHs and townhouses contributed around 33% and 8% of total revenue, respectively. LALIN’s ability to control construction costs helps the company offer competitively-priced housing units with favorable profit margins.
TRIS Rating said, LALIN’s presales in 2009 continued to increase, climbing by 21% to Bt1,432 million. Presales improved to Bt1,187 million in 2008, up 6% from Bt1,115 million in 2007. LALIN’s total revenue also rose from a record low of Bt955 million in 2007 to Bt1,095 million in 2008 and Bt1,229 million in 2009. The company’s promotional schemes following the government tax incentives, a good response for new projects, and better sales volume in some existing projects helped raise LALIN’s presales and revenue during the last two years. Gross profit margins improved to 40% of total revenue in 2008 and 41% in 2009, up from 39% in 2007. The adjusted operating margin was 23.25% in 2008 and 28.18% in 2009, rising from 19.38% in 2007 because of efficient cost control and the benefits from the government tax incentives. With improving operating performance and conservative project expansion, the company’s cash flow protection was strengthened as the funds from operations (FFO) to total debt ratio was 125.70% in 2008 and 56.52% in 2009, much higher than 19.68% in 2007. Financial flexibility remained at satisfactory level, supported by undrawn committed credit facilities of Bt722 million and the ratio of total debt to capitalization at a low level of 12.33% at the end of 2009.
The residential property market was volatile over the past year, reflecting the national political instability and the global financial crisis. Although it recovered in the second half of 2009, the market remained relatively slow and has become increasingly dominated by major developers. Government tax incentives that allowed homebuyers to get a personal income tax deduction of up to Bt300,000 for the purchase of a new residence expired in December 2009. Therefore, demand for residential property in 2010 will depend heavily on consumer confidence and the pace of economic recovery. TRIS Rating expects to see demand for residential property in 2010 to be in line with demand in 2009. -- End
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