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TRIS Rating has assigned the rating of "A-'' to the proposed issue of up to Bt2,500 million in senior debentures of Hemaraj Land and Development PLC (Hemraj). At the same time, TRIS Rating has affirmed the company and current issue ratings of Hemraj at "A-". The outlook remains "stable". The proceeds from the debentures will be mainly used to repay debt and finance a planned expansion. The ratings continue to reflect the company's proven record in industrial estate development and its growing base of recurring income from utilities services. The volatile nature of the industrial property market and the global economic slowdown following the European debt crisis remain rating concerns. The "stable" outlook reflects the expectation that Hemraj will be able to maintain its strong position in industrial estate development. The expanding base of recurring income from the sale of utility services, energy business, and rental factories will provide a cushion for the company, despite the risk of a global economic slowdowns.
Hemraj is one of the leading industrial estate developers in Thailand. It was established in 1988 and listed on the Stock Exchange of Thailand (SET) in 1992. As of August 2012, the Horrungruang family held
15.0% of Hemraj's shares. In addition to selling industrial land and utilities services, the company also developed a luxury condominium project in central Bangkok. Over the past three years, property sales accounted for 60%-70% of the company's total revenue, except in 2009 when industrial land sales were hard hit by the global economic slump. Recurring income, mainly from the sale of utilities services and rental income, made up the remainder, or about 30%-40% of total revenue.
Hemraj owns and operates six industrial estates located in Rayong, Chonburi, and Saraburi provinces with a total gross area of 33,535 rai. Among the 804 existing customers in Hemraj's estates as of September 2012, 34% were in the automotive industry and 10% were in the petrochemical industry. As of September 2012, approximately 28% of the remaining salable area of 6,058 rai was located in Hemaraj Eastern Seaboard Industrial Estate (H-ESIE). The major customers in this estate are in the automotive industry.
Land sales in the first nine months of 2012 reached a record high. Hemraj sold 1,952 rai, a significant increase from 1,670 rai sold in 2011. The major driver for the spectacular jump in land sales was the expansion of manufacturing activity, especially in the automotive industry. According to a CB Richard Ellis report, total industrial land sales in Thailand rose to 3,675 rai in the first half of 2012, an increase of 56.9% over the same period of last year (year-on-year or y-o-y). In addition to the rise in land sales due to normal expansion of customers, Hemraj's land sales were also higher because some companies relocated away from the flooded industrial estates in central Thailand.
In the first nine months of 2012, Hemraj's financial performance was strong. Most core business segments reported strong growth. Hemraj's revenue from land sales jumped 219.5% y-o-y to Bt2,942 million in the first nine months of 2012. Recurring income from utilities services and rental properties also grew in the first nine months of 2012, climbing by 22.9% y-o-y. Hemraj's total revenue in the first nine months of 2012 increased significantly by 78.0% y-o-y to Bt4,637 million. The operating margin also improved, rising to 34.1% in the first nine months of 2012 compared with 28.1% in the first nine months of 2011. As a result, earnings before interest, tax, depreciation and amortization (EBITDA) in the first nine months of 2012 rose by 209.6% y-o-y to Bt2,293 million.
Hemraj's recurring income remained healthy. Income from utility services, which made up about two-thirds of total recurring income for the first nine months of 2012, was Bt1,033 million, up by 17.4% over the same period of last year. The rise was attributed to higher demand as existing customers expanded and more customers in Hemraj's estates. The ready-built factory for rent business also showed an impressive performance. The rented area increased by 50,017 square meters (sq.m.) in the first nine months of 2012, or a 31% increase from the end of 2011. Hemraj's recurring income was further strengthened in the third quarter of 2012. GHECO-One, a 660-megawatt-coal-fired power project in which Hemraj holds a 35% stake, started commercial operation on 26 July 2012. This project contributed equity income of Bt132 million to Hemraj (excluding unrealized foreign exchange gains) in the third quarter of
2012.
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Hemraj's level of leverage remained moderate. The debt to capitalization ratio stood at 50.5% as of September 2012, compared with 48.0% as of December 2011. Looking forward, the total debt to capitalization ratio will increase due to Hemraj's heavy capital expenditures. Hemraj plans capital expenditures worth about Bt15,000 million during 2012-2013. The expenditures include expansions of its industrial estates, expanding the capacities of the utilities services, continued investments in GHECO-One, and investments in property development and Small Power Producer (SPP) projects. Even though, the planned investments will increase total debt over the next few years, Hemraj will generate cash from the huge backlog of land sales and is expected to receive dividend income from GHECO-One. Funds from operation is expected to improve to Bt1,500-Bt2,000 million per year over the next few years, compared with Bt500-1,200 million during the past several years. However, TRIS Rating expects the company to maintain the debt to capitalization ratio, according to its stated policy, of approximately 50% when pursuing its growth strategy in the medium to long term.
HEMRAJ16OA: Bt1,500 million senior debentures due 2016 A- HEMRAJ217A: Bt2,000 million senior debentures due 2021 A- Up to Bt2,500 million senior debentures due within 2023 A-
Rating Outlook: StableTRISRatingCo.,Ltd.
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