Bangkok--3 Mar--TRIS Rating
TRIS Rating has assigned the rating of “A+” to the proposed issue of up to Bt6,000 million in senior unsecured debentures of Land & Houses PLC (LH). At the same time, TRIS Rating has affirmed the company rating of LH and the ratings of its existing senior unsecured debentures at “A+”. The outlook remains “stable”. The proceeds from the new debentures will be used to refinance existing debt and to fund LH’s expansion plans. The ratings reflect LH’s leading position in the residential property development market, strong brand franchise, and proven operational track record. The ratings also take into consideration the financial flexibility from portfolio of income-generating assets and marketable securities. However, the ratings are partially constrained by the cyclical and competitive nature of the property development industry, and LH’s moderate financial leverage. The “stable” outlook reflects the expectation that LH will be able to sustain its strong operating performance, acceptable financial position, and market competitiveness. Over the next three years, LH’s revenue is expected to be in the range of Bt28,000-Bt35,000 million per annum. Its interest-bearing debt to equity ratio should be kept lower than 1 times. LH’s ratings or outlook could be revised downward, should its operating performance or leverage significantly deteriorate from the current level. The rating upgrades are unlikely in the near term.
LH is one of Thailand’s leading property developers. The company’s total assets as of December 2014 stood at Bt87,000 million, ranked the largest among residential property developers listed on the Stock Exchange of Thailand (SET). The company’s revenue was Bt28,317 million in 2014 (one of top three largest among listed property developers). LH was established in 1983 by the Asavabhokhin family. As of September 2014, the Asavabhokhin family held 28% of the company’s shares, followed by the Government of Singapore Investment Corporation (GIC) at 15%. LH’s core products are single detached houses (SDH), which contributed 70%-75% of total revenue over the past six years. LH’s very strong business profile is underscored by its residential brand equity with premium market perceptions in terms of product quality and after-sale service. The company has succeeded in offering several SDH brands under various price ranges and customizing products to suit buyer affordability and characteristics for each project location. LH’s presales also increased over time. Presales in 2014 stood at around Bt31,000 million, growing 4% year-on-year (y-o-y) from 2013.
As of December 2014, LH’s backlog was around Bt20,000 million. The backlog of Bt5,000 million is expected to be transferred in 2015, and the remainder will be transferred during 2016-2017. Over the next three years, TRIS Rating’s base case scenario expects LH’s revenues will range from Bt28,000 million to Bt35,000 million per annum. LH’s operating margin (operating income before depreciation and amortization, as a percentage of revenue) increased to 24%-25% during 2013-2014, up from 22% in 2012 and 18% in 2011. LH’s operating margin is expected to stay at least 20% for the next three years, factoring in pressures from rising project development costs, market competition, and overhead expenses to support business expansion.
LH’s debt to capitalization ratio at the end of December 2014 was 44.3%, improving from 49.8% as of December 2013. LH’s bond covenant limits its interest-bearing debt to equity ratio at 1.5 times. At the end of December 2014, the ratio stood at 0.8 times. Despite its consecutive launch plans for condominium projects and aggressive dividend policy, LH’s debt to capitalization ratio is expected to remain below 50%, or the interest-bearing debt to equity at around 1 times. LH’s moderate leverage level is partly offset by its holdings of sound income-generating assets and a sizable portfolio of marketable securities. The fair value of LH’s investments in listed associates was Bt48,000 million at the end of December 2014. Equity income from its investments was around Bt2,000 million per annum during 2012-2014, up from around Bt1,000 million per annum during 2008-2011.
LH’s liquidity profile is acceptable. The ratio of funds from operations (FFO) to total debt was 16%-17% during 2013-2014. For the next three years, TRIS Rating expects LH’s FFO to total debt ratio to stay above 13%, while the EBITDA (earnings before interest, taxes, depreciation, and amortization) interest coverage ratio will stay above 5 times.
Land and Houses PLC (LH)
Company Rating: A+
Issue Ratings:
LH153A: Bt3,100 million senior unsecured debentures due 2015 A+
LH156A: Bt2,000 million senior unsecured debentures due 2015 A+
LH159A: Bt2,500 million senior unsecured debentures due 2015 A+
LH163A: Bt3,500 million senior unsecured debentures due 2016 A+
LH165A: Bt1,500 million senior unsecured debentures due 2016 A+
LH169A: Bt3,500 million senior unsecured debentures due 2016 A+
LH172A: Bt500 million senior unsecured debentures due 2017 A+
LH174A: Bt3,500 million senior unsecured debentures due 2017 A+
LH17OA: Bt4,000 million senior unsecured debentures due 2017 A+
Up to Bt6,000 million senior unsecured debentures due within 2020 A+
Rating Outlook: Stable