TRIS Rating Affirms Company Rating of “LALIN” at “BBB/Stable”

TRIS Rating Co., Ltd. has affirmed the company rating of Lalin Property PLC (LALIN) at “BBB” with “stable” outlook. The rating reflects the company’s cost competitive position, prudent financial management, and its acceptable track record in the middle- to low-income housing market. The rating also takes into consideration the improvement in the company’s financial profile during the first nine months of 2008. However, these strengths are offset by the current slowing economy which will cause a downturn in the property development industry, the cyclical nature of the property development industry, and commercial banks’ tighter credit policies which limit homebuyers to access mortgage financing.

The “stable” outlook reflects the expectation that LALIN will have sufficient liquidity and flexibility during the economic downturn. The company’s ability to boost sales performance in the medium term, clear slow-moving inventory, maintain acceptable profit margins, and keep a low financial leverage will be positive for the rating or outlook.

TRIS Rating reported that LALIN is a medium-sized housing developer. It was established in 1988 and listed on the Stock Exchange of Thailand (SET) in November 2002. Mr. Taveesak Watcharakkawongse and Mr. Chaiyan Chakarakul, the major shareholders, held a combined 63% stake as of August 2008. The company has focused on low-rise housing projects and offered single-detached houses (SDHs), semi-detached houses (semi-DHs), and townhouses, with an average price in 2008 of Bt2.5 million per unit. During 2007 and the first nine months of 2008, SDH sales were the major source of revenue, contributing more than 50% of total revenue. Semi-DH and townhouse sales constituted around 35% and 8% of total revenue, respectively. LALIN’s ability to control construction costs helps the company offer competitively-priced housing units with favorable profit margins.

Although overall demand in the low-rise housing segment remained low, total revenue of LALIN increased to Bt888 million during the first nine months of 2008, up 29% from the same period of 2007. The rise in revenue came after sales reached a low record in 2007. Promotional schemes and the government tax incentives which took effect in March 2008 also pushed revenue higher. The tax incentives also helped boost profits. Adjusted operating margin was 24.44% during the first nine months of 2008, up from 19.38% in 2007. Due to improved operating performance and a low level of investment in project development during the first three quarters of 2008, the company’s funds from operations (FFO) to total debt ratio increased to 62.28% (non-annualized). This level was substantially higher than most developers. LALIN has maintained a healthy level of financial flexibility, with approximately Bt1,000 million in unused credit lines. Leverage was relatively low at 7.11% as of September 2008.

TRIS Rating said that the residential property market was volatile over the past year, as a result of both the domestic political and global financial crisis. Although residential property demand improved in mid-2008 following the launch of the government stimulus packages early in the year, it contracted by year-end as a number of negative factors simultaneously hit the market. Despite the more stable political situation, the slowing economy will negatively impact demand in the residential property market. Moreover, as banks have implemented more stringent credit policies for mortgage loans during the economic downturn, this will limit some homebuyers to access credits for their new house purchases. Although the new tax incentives will allow a new house transaction of up to Bt300,000 to be tax-deductible in personal income tax calculation, it is anticipated that the residential property market in the Greater Bangkok will drop by around 10%-20%, whereas the gross domestic product is anticipated to grow in the range of 0%-2%, a contraction is also possible in 2009. To maintain their credit quality, developers must prudently manage their liquidity and preserve sufficient flexibility to meet their obligations during a slowing economy. -- End

Company Rating: Affirmed at BBB Rating Outlook: Stable Copyright 2009, 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.

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