TRIS Rating reported that 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 March 2011, the Horrungruang family held 15.0% of Hemraj’s total shares. In addition to sales of industrial land and utilities, 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, which came mainly from utilities and rental income, typically 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 31,350 rai. Of its 443 existing customers as of June 2011, 36% were in the automotive industry and 11% were in the petrochemical industry. Approximately 44% of the remaining salable area of 7,736 rai, as of June 2011, was located in Hemaraj Eastern Seaboard Industrial Estate(H-ESIE). The major customers in this estate are in the automotive industry.
In the first half of 2011, Hemraj’s financial performance was affected by an accounting change. In January 2011, the Federation of Accounting Professionals changed the revenue recognition method for property developers to the title transfer method from the percentage of completion method. Hemraj’s total revenue in the first half of 2011 dropped by 49% over the same period of last year (year-on-year or y-o-y), to Bt1,427 million. Earnings before interest, tax, depreciation and amortization (EBITDA) in the first half of 2011 also plunged, falling by 48% y-o-y to Bt382 million. However, Hemraj’s land sales remained encouraging at 769 rai in the first half of 2011, underpinned by the expansions undertaken by its automotive customers. With the impressive land sales in the first half, the level of recognized revenue is expected to accelerate in the second half of 2011.
Hemraj’s recurring income was resilient and has continued increasing. In the first half of 2011, utilities income, which made up about 68% of total recurring income for 2010, rose to Bt842 million, or a 32% increase over the same period of last year. The growth drivers were higher demand following the economic recovery and the consolidation of revenue from two subsidiaries: Hemaraj Saraburi Industrial Land Co., Ltd. (HSIL) and Hemaraj Rayong Industrial Land Co., Ltd. (HRIL). The ready-built factories business also improved in the first half of 2011. Rented area increased by 21,069 square meters (sq.m.) in the first half of 2011, compared with an increase of 17,231 sq.m. for the entire 2010. Rental income from ready-built factories in the first half of 2011 was higher by 24% y-o-y.
The level of Hemraj’s leverage remained moderate at 46.0% as of June 2011, compared with 46.6% as of December 2010. Looking forward, the total debt to capitalization ratio will increase due to Hemraj’s heavy capital expenditures of Bt4,000-Bt6,000 million per year during 2011-2012. These capital expenditures include an investment in GHECO-One Co., Ltd. plus expansions in the industrial estate, utilities, and Small Power Producer (SPP) businesses. Despite the rise in leverage, the repayment schedule is properly laid out. The scheduled loan repayments of approximately Bt350-Bt850 million per year during 2011-2012 can be accommodated by Hemraj’s funds from operations (FFO) of about Bt700-Bt900 million per year. As of June 2011, the company had cash on hand of Bt2,500 million and available credit facilities of about Bt2,000 million from financial institutions. The higher repayments scheduled in 2013 will be supported by cash dividends from GHECO-One, an independent power producer (IPP) project. GHECO-One, in which Hemraj has a 35% stake, is expected to be in operation and provide a sizeable and reliable stream of dividends for the company from 2012 onward.
TRIS Rating said about the economic slowdown in major developed countries, such as the US, EU nations, and Japan that it may hinder the expansion plans of some investors. However, the impact may be partly alleviated by a rise in the number of plant relocation from Japan to Thailand after the devastating tsunami in Japan in March 2011. Thailand is cited as a desirable geographic area with good infrastructure. In addition, the current government has announced many populist policies, including tax refunds of up to Bt100,000 for first-time car buyer. This scheme will be applied for small passenger cars and pick-up trucks with sales prices of less than Bt1 million, for the vehicles purchased during 16 September 2011-31 December 2012. This scheme could boost domestic demand for vehicles in the short term and partly offset the potential slowdown in the export market.
Hemaraj Land and Development PLC (Hemraj)
Company Rating: Affirmed at A-
Issue Rating:
Up to Bt1,500 million senior debentures due within 2016 A-
Rating Outlook: Stable