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L.P.N. Development

Jun 24. 2014
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By SCB Securities

Overhang lifted, look for outstanding 2015 BUY

L.P.N. Development Plc

- Market overhang lifted by moving Lumpini Township Rangsit Klong 1 to next year

- Earnings raised 7-12% for 2014-2016F to factor in better presales than

   expected and shift of Lumpini Township Rangsit Klong 1 to 2015 and 2016

- 2015 earnings growth expected to be a high 47%; current backlog of Bt23.5bn secures  96% of our forecast

- Raised PT to Bt23/share and upgrade rating to BUY from Neutral

Overhang lifted. The denial of the Environmental Impact Assessment (EIA) for

Lumpini Township Rangsit Klong 1 has been hanging over LPN. However, LPN is

determined to get the EIA by the end of the year, easing market concerns. It expects

to complete construction by mid-2015, though at a higher cost.

Earnings and valuation upgrade. We raise our earnings forecast by 7% to Bt2bn for

2014, 12% to Bt3bn for 2015 and 5% to Bt3.6bn for 2016. We have incorporated a better

presales outlook for 2014 to accommodate the restoration of consumer confidence

and shift revenue from Lumpini Township Rangsit Klong 1 to 2015 and 2016. We are

conservative and assume only Phase 1 is developed with a humble gross margin of

28%. With higher RoE next year, we raise our valuation to 3.0x from 2.5x PBV, which

raises PT to Bt23/share from Bt18.5/share.

Superior outlook for 2015. We estimate impressive earnings growth of 47% to Bt3bn

next year, driven by strong revenue growth and solid blended gross margin of 33.9%, a

high not seen since 2011. Backing this is the wide margin for The Lumpini 24, Lumpini

Place Srinakarin-Huamark Station, Lumpini Park Rattanathibet-Ngamwongwan,

Lumpini Park Rama9-Ratchada and Lumpini Place Borommaratchachonnani. These

projects were launched when the market was hot and LPN was able to price them

well. The Lumpini 24 is expected to bring a high margin of 38% because the land was

inexpensive. We note our forecasts are more conservative than guidance and below

consensus by 13% for 2014 and 5% for 2015.

Good visibility. LPN currently has total backlog of Bt23.5bn, securing 90% of our 2014F

and 96% of 2015F. With EIA permits already in hand for most projects and construction

in progress, delays are not a concern. Lumpini Township Rangsit Klong 1 does not yet

have its EIA, but it contributes only 6% of 2015F.

More new launches. Healthy condo demand has returned, going by the improved

take-up rate of 25-100% of LPN’s recent launches versus 20% for two projects in

January. This has encouraged LPN to add 4-5 projects worth ~Bt10bn in 2H14 to bring

total new launches to Bt21bn in 2014, 30% above our previous forecast. In our view, the

company could add more projects if market sentiment continues to improve, especially

condos in Cha-am and Hua Hin where it already has land.




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