TRIS Rating has assigned 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 has started transferring a large amount of its condominium backlog since 2012. These strengths are partly offset by the company’s business concentration risk, since it relies heavily on the high-end condominium segment. RML’s operating and financial performances were relatively volatile, resulting from very few and inconsistent launch of its new condominium projects. The rating also takes into consideration the short proven execution of new projects under current major shareholder and top executives, due to changes in its major shareholders and key executives for several times during the past decade. The rating continues to reflect the cyclical and competitive nature of the property development industry, plus concerns over the slower-than-expected growth in the domestic economy and high household debt levels which may lead to low purchasing power and stagnant demand in residential property development.
The “stable” outlook reflects the expectation that RML will be able to develop and deliver its condominium projects as scheduled. With much of the current backlogs scheduled to be delivered during the remainder of 2015 through 2017, RML’s operating and financial performances are expected to improve.
The rating and/or outlook could be upgraded, should the company successfully launch new projects while maintaining the debt to capitalization ratio below 60% and the operating margin at 10%-15% on a sustainable basis. On the contrary, the rating and/or outlook could be revised downward should RML’s capital structure and profitability be significantly lower than 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 changed several times. Seamico Securities PLC became the largest shareholder in 2002, then the Teigen family took over in 2005. Istithmar Hotels FZE and IFA Hotels & Resorts 3 Ltd. (IFA) became the major shareholders in late 2006. In February 2013, JS Asset Management Pte. Ltd. (JS) purchased a 24.98% stake in RML from IFA, 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). Jit Sun’s businesses include offshore oil and gas services, engineering and ship construction for the offshore and marine industries, boutique hotel, and food & beverages.
RML mainly focuses on the high-end condominium segment, with average selling prices ranging from Bt85,000 to Bt400,000 per square metre (sq.m.). As of March 2015, RML had six existing condominium projects, with a total project value of Bt39,000 million. The value of two projects, The River and 185 Rajadamri, comprised 65% of the portfolio. At the end of March 2015, the value of the remaining unsold units, across all six projects, was around Bt7,000 million. RML carried a backlog worth Bt9,000 million. This large backlog will partly secure its revenues over the next three years.
Due to inconsistent launch of new projects, RML’s operating performance has fluctuated. Total revenue during 2008-2011 ranged from Bt1,163 million to Bt3,245 million. Revenue soared to Bt5,449 million in 2012 and Bt5,681 million in 2013, as RML transferred the finished units in The River project to customers. Total revenue in 2014 grew by 16% year-on-year (y-o-y) to Bt6,581 million, due primarily to the transfer of units in the 185 Rajadamri project. Revenue during the first quarter of 2015 was Bt1,613 million, a 2% y-o-y drop.
With projects in prime locations and high down payments of 25%-40% of the selling price, the units in the backlog are expected to be transferred to customers as scheduled. As a result, total revenue for the full year of 2015 is expected to be around Bt6,000 million. RML’s total revenue will peak in 2015, as its revenue stream during the remainder of 2015 is partly secured by units in backlog worth Bt4,400 million. Total revenue in 2016 and 2017 will be supported by the backlogs valued at Bt2,500 million and Bt1,900 million, respectively.
RML’s profitability has improved since 2012, once the company started to deliver the finished condominium units in The River project in 2012 and in the 185 Rajadamri project in 2014. The operating margin, measured as operating income before depreciation and amortization as a percentage of sales, increased to 18%-20% during 2012-2013 and significantly improved to 27% during 2014 through the first quarter of 2015. The net profit margin rebounded to around 10% during 2012-2013 and 19% during 2014 through the first three months of 2015, up from -41% in 2011 and 2% in 2010. RML’s operating margin is expected to decline over the next three years since the gross margin of two uncompleted projects is lower than that of The River and the 185 Rajadamri projects. However, RML’s operating margin over the next three years is expected to stay above 10%.
RML’s financial leverage during 2007-2013 was higher than those of most listed property developers. The debt to capitalization ratio ranged from 58% to 92%. The ratio improved to 50%-51% during 2014 through the first quarter of 2015 since the company started to deliver the finished units in the 185 Rajadamri project in the beginning of 2014. Under TRIS Rating’s base case scenario, RML’s debt to capitalization ratio is expected to stay below 60%, though the company plans to invest more residential projects and recurring-income assets in the next three years. In addition, cash flow protection and liquidity are expected to remain at acceptable levels.
TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand Copyright 2015, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating-information/rating-criteria.html.