L&H to focus on land for 2013 residential projects working for a better debt-to-equity ratio

"Our investment this year will focus only on buying land for developing residential projects next year," Adisorn Thananun-Narapool, senior executive vice president, told a press conference yesterday.

"Our cost of funds also will fall because our debentures worth Bt3.5 billion, with an interest rate of 6 per cent, will expire in July. This will help us to reduce our cost of funds from an average 4.3 per cent to only 4 per cent, because our new debentures will offer an interest rate of only 4 per cent," he said.

Over half of the new debentures worth Bt4 billion would be sold this quarter and the remaining bonds worth Bt2 billion in the third quarter. The property fund will be marketed this first half of the year.

L&H will spend Bt3.5 billion to redeem the debentures due in July and Bt5 billion to acquire land to develop residential projects next year.

This year would see the launch of 16 residential projects worth Bt32.6 billion,

The capital expenditure budget for this year is Bt10 billion less than last year, when it acquired undeveloped land worth Bt5 billion, invested Bt1.8 billion in Land & Houses Bank and opened the Terminal 21 shopping centre.

L&H targets revenue growth of 14.7 per cent from its core business – developing residences for sale – to Bt22 billion this year from Bt19.18 billion last year.

The company’s gross profit margin will shrink from an average 32.9 per cent to 31.9 per cent, as construction costs will climb 8-10 per cent above last year. Driving construction costs up are rising energy costs, the hike in the minimum daily wage from Bt215 to Bt300 and inflation in building materials such as cement, steel and decorations.

However, its net profit margin will continue to show double digits, thanks to the cut in the corporate income tax from 30 per cent to 23 per cent and the high performance expected for its rental and investment business this year.

Naporn Soonthornchitcharoen, another senior executive vice president, said 70 per cent net profit would come from residences for sale and 30 per cent from the investment business, which generates dividend income.

"Our rental income from the shopping centre, Terminal 21, is still not much for our business. The rental business will show high returns in three or five years," he said.

Real estate remains the company’s core business although this year the market will continue to feel the impact from the flood crisis, as people are delaying their decision to buy a home. But the market should recover in the second half.

L&H will introduce only two residential projects this quarter. The other 14 projects will be spread out in the rest of this year. Four will be located upcountry – Chiang Mai, Nakhon Ratchasima, Phuket and Khon Kaen.

"We believe that the property market this year will better than last year, which faced the flood in the last quarter," he said.

In the first 11 months of last year, only 77,351 new residences were registered in Greater Bangkok, down 20.2 per cent from 96,938 units in the same period of the previous year, he said.

Of the new units last year, 18,986 were built by the landowner, down 8 per cent from 20,637 units, and 58,365 were developed by property firms, down 23.5 per cent from 76,301 units.