TRIS Rating Assigns “A+/Stable” Rating to Senior Unsecured Debt Worth Up to Bt6,000 Million of “LH”

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, plus concerns over the slower-than-expected growth in the domestic economy and high household debt levels.

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 and/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 June 2015 stood at Bt90,000 million, ranked the largest among residential property developers listed on the Stock Exchange of Thailand (SET). The company’s revenue was Bt11,581 million in the first half of 2015 (one of top three largest among listed property developers). LH was established in 1983 by the Asavabhokhin family. As of May 2015, the Asavabhokhin family held 31% of the company’s shares, followed by the Government of Singapore Investment Corporation (GIC) at 16%. LH’s core products are single detached houses (SDH), which contributed 70%-80% of total revenue over the past five 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 increased during 2012-2014. Presales in the first six months of 2015 dropped by 27% year-on-year (y-o-y) to Bt11,213 million due mainly to the slowdown in residential property market.

As of June 2015, LH’s backlog was around Bt21,000 million. The backlog of Bt4,500 million is expected to be transferred in the remainder of 2015, and the rest 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 profit margin (operating income before depreciation and amortization, as a percentage of revenue) increased to 24%-25% during 2013-2014, up from 22% in 2012. Its operating profit margin decreased to 21% during the first six months of 2015. 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 was 44% as of December 2014 and 45% as of June 2015, improving from 50% as of December 2013. LH’s bond covenant limits its interest-bearing debt to equity ratio at 1.5 times. At the end of June 2015, the ratio stood at 0.8 times. 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 Bt43,000 million as of June 2015. Equity income from its investments was around Bt2,000 million per annum during 2012-2014.

LH’s liquidity profile is acceptable. The ratio of funds from operations (FFO) to total debt was 14%-17% during 2013 through the first six months of 2015. 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.

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