Bangkok--25 May--Fitch Ratings
Fitch Ratings (Thailand) Limited has today affirmed Thailand-based Land and Houses Public Company Limited's (LH) National Long-term rating at 'BBB+(tha)' with a Stable Outlook, and its National Short-term rating at 'F2(tha)'.
The ratings reflect its leading position in the Thai residential property development sector, its solid brands and strong management team with long experience in the industry. Furthermore, LH's diversified property types and locations as well as large project base help strengthen its cash flow generating capability.
LH's earnings and financial leverage in 2009 outperformed estimates, supported by the stronger than expected housing market in H209 and its revenue from condominium sale. In addition, LH's EBITDAR grew by 16% yoy to THB4.6bn in 2009. Although dividends payout remained high in 2009, its financial leverage (measured by net adjusted debt to EBITDAR) fell to 3.3x at end-2009 from 3.8x at end-2008, thanks to strong earnings and lower working capital.
Although LH continued to report healthy earnings in Q110, LH's EBITDAR in 2010 is expected to decrease compared with 2009 due to an increase in special business tax and transfer fee, as well as the adverse impact from the country's political instability. Fitch also expects LH's financial leverage to temporarily increase in 2010-2011 given its sizeable investment plan, including the investment in the Terminal 21 project, additional equity injection into Land and Houses Retail Bank Public Company Limited and further land acquisitions.
LH's ratings are constrained by the continued high dividend payout and the cyclical nature of the residential property development business, which leads to volatile working capital and operating cash flow. Other key credit risks include Thailand's escalating political instability, which could lead to poor consumer confidence and weaker-than-expected housing demand, intense competition in condominium segment, and higher construction costs. That said, LH's ability to gain market share from smaller developers of single detached houses, its large project portfolio and its substantial holding of liquid assets partially mitigates these risks.
The Stable Outlook reflects Fitch's expectation that LH's dominant market position with strong brand recognition, along with the strengths mentioned above, should help maintain its liquidity and financial flexibility consistent with the 'BBB+(tha)' rating over the medium-term. Sustained improvement in LH's operating performance and a financial leverage of below 3.0x should positively affect the ratings. Conversely, weaker-than-expected EBITDAR and liquidity profile, as well as higher-than-expected net debt from high debt-funded investments, substantial dividend payment or capital injection in affiliates could negatively affect the ratings.
Applicable criteria, "Corporate Rating Methodology", dated November 24, 2009, are available on Fitch's website at www.fitchratings.com.
Contacts: Pimrumpai Panyarachun, Somruedee Chaiworarat, Vincent Milton, Bangkok, Tel: +662 655 4755.
Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(tha)' for National ratings in Thailand. Specific letter grades are not therefore internationally comparable.
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