Bangkok--23 Feb--TRIS Rating
TRIS Rating Co., Ltd. has affirmed the company rating of Hemaraj Land and Development PLC (Hemaraj) at “BBB+” with “stable” outlook. The rating reflects Hemaraj’s proven record in industrial estate development, its reliable utilities and service incomes, and its healthy balance sheet. The rating also takes into consideration the fluctuation of industrial estate development, the company’s diversification into residential property development, and the slowdown of the Thai economy due to political uncertainty and regulatory concerns.
The “stable” outlook reflects the expectation that Hemaraj will be able to generate revenue from land sales and service income from industrial estate development. The condominium project is expected to be completed and transferred to customers without a significant cost overrun or long delay. The company’s financial policy is expected to remain conservative to weather the downturns of the property development market.
TRIS Rating reported that Hemaraj is a leading industrial estate developer in Thailand that was established in 1988 by the Horrungruang, Srisomburananonta and Anankusri families. As of September 2006, the Horrungruang family, the only original founder, held 16.4% of the company’s shares. Hemaraj owns and operates six industrial estate projects located in Rayong, Chonburi, and Saraburi provinces, including the newly acquired Hemaraj Eastern Seaboard Industrial Estate (H-ESIE). The total remaining salable area of approximately 12,000 rai is sufficient for future development given average land sales of 600-700 rai per year. “The Park”, Hemaraj’s first condominium project, has received a good response from customers, with 182 units (81% of total units) sold as of September 2006. However, construction is 55% complete and behind plan. The project is expected to be ready for transfer in the first half of 2007.
For the first nine months of 2006, Hemaraj’s land sales followed the industry trend. The company sold 293 rai of land, a 43% decrease from the same period of 2005. However, total sales significantly improved to reach 712 rai at the end of 2006, approximately the same amount as sold in 2005. Revenue from land sales during the first nine months of 2006 was Bt604 million, accounting for 24% of total revenue. Utilities and service incomes of Bt600-Bt700 million per year provide more reliable cash flow, enabling the company to withstand the fluctuations of industrial land sales. Condominium sales contributed the majority or 50% of total revenue, raising the operating margin to 27.4%. Funds from operations is expected to improve after condominium units are transferred to owners in 2007. Hemaraj’s capital structure remains healthy. As of September 2006, its debt to capitalization ratio was 30.6%, a slight improvement from 31.8% in 2005, and the total debt stood at Bt2,954 million.
TRIS Rating said that political uncertainty and newly-announced government measures have currently affected industrial land demand. However, in the medium to long term, prospects for the overall industrial property sector remain good. Foreign investment and international trade promotion policies, together with Thailand’s ideal geographic location, continue to attract foreign investors. The proposed amendments to the Foreign Business Act may also negatively affect the confidence of foreign investors and the demand for high-priced condominiums which mostly target foreign buyers.
Hemaraj Land and Development PLC (Hemaraj)
Company Rating: Affirmed at BBB+
Rating Outlook: Stable