Bangkok--1 Feb--TRIS Rating
TRIS Rating Co., Ltd. has affirmed the ratings of the senior debentures worth Bt800 million (LALI077A, LALI078A) of Lalin Property PLC (LALIN) at “BBB+” with “stable” outlook. The ratings reflect the company’s track record in the middle-income housing market, its cost competitive position and its healthy balance sheet. The ratings also take into consideration the company’s weaker-than-expected operating performance and the cyclical nature of the property development market. A
slowdown in the housing market due to declining consumer confidence and an uncertain political situation are also rating concerns.
The “stable” outlook reflects the expectation that LALIN will be able to maintain its position in the housing market. With its cost effectiveness and conservative financial policy, the company is expected to be able to weather the cyclical downturn of the housing market.
TRIS Rating reported that LALIN is a medium-sized housing developer. It was established in 1988 by Mr. Taveesak Watcharakkawongse and Mr. Chaiyan Chakarakul, who have consistently held two-thirds of the company’s shares. LALIN develops housing projects primarily in the Bangkok Metropolitan Area (BMA). Its main housing products are single detached houses (SDH), twin houses, and townhouses with an average price of Bt3 million per unit. The company’s competitive advantage stems from its ability to control construction and overhead costs, which enables the company to
offer lower prices while achieving favorable profit margins. As of September 2006, the company had 20 housing projects on hand which is able to contribute sales for 2-2.5 years. Due to uncertain circumstances, the company may slow opening new projects and focus on selling housing units in existing projects in 2007.
LALIN’s operating performance deteriorated in 2006. The number of new units sold for the first nine months of 2006 dropped by 25% compared with the 2005 figures. Revenue decreased to Bt1,488 million during the first nine months of 2006 from Bt2,020 million for the same period of 2005. The company’s gross margin of 40% and adjusted operating margin of 30%, however, remain higher than the industry average. LALIN’s capital structure is sufficiently strong. As of September 2006, its debt-to-capitalization ratio was 23%. Total debt was worth Bt974 million, including its Bt800 million in debentures due in 2007. TRIS Rating views that LALIN’s cash on hand of Bt505 million, unused credit facilities of Bt643 million as of December 2006 and a healthy balance sheet should enable the company to refinance or repay the debentures as scheduled.
TRIS Rating said that the political uncertainty following the bombings in Bangkok on 31 December 2006 has further deteriorated consumer confidence and softened the housing market. Though inflationary pressures and interest rates are expected to be alleviated, residential demand is expected to continue to be soft in 2007-2008.