Land and Houses

Land and Houses Plc (LH)

Investment thesis: LH is our top pick in the sector with a YE12 target price of Bt8, based on a sum-of-its-parts valuation—a housing PER of 17.3x (LH’s FY05-10 mean) and Bt2.70/share of investment value. The firm will lead the sector bounce, as various catalysts are not yet priced in: 1) new bookings in 3Q11 outperformed the sector, 2) a sentiment boost when LHBANK (LH has a 36% stake) wins a commercial banking license, 3) big gains from upcoming asset sales to a property fund and 4) a potential gain from divesting QCON (21% stake). LH should post its best bottom-line since FY05 for FY11 and we see scope for earnings upside. The stock trades at 1SD below its mean (FY12 PER of 12.5x versus a 17.3x FY05-10 mean). The dividend yield outlook is attractive at 6.7% for FY11 and 7.1% for FY12.
3Q11 new bookings to outperform the sector: LH has sustained strong presales (better than the sector mean for four straight quarters, 4Q10-3Q11). We expect new booking growth of 6% YoY (and double-digit low-rise presales expansion) for 3Q11 versus a 12% drop for the sector as a whole.
Scope for revenue upside: Management is confident that LH will achieve FY11 revenue of Bt21.5bn (30% growth). If it does, it will beat our model by 5%. Further-more, condo transference could mean scope for profit upside to our forecast—we model for condo revenue of just Bt2.9bn, far below company’s target of Bt3.7bn.
Best earnings of the year in 4Q11: We forecast a core profit of Bt944m for 3Q11 (growth of 58% YoY and 4% QoQ). Three condos together worth of Bt4.3bn—Ocas Hua Hin (50% booked), The Room Sathorn-Taksin (50% booked) and The Key Paholyothin (90% booked)—will start transferring in 4Q11. We preliminarily forecast profit growth of 30% YoY and 50% QoQ for 4Q11.
Gains from asset divestments soon: We understand that plans to sell assets (serviced apartments and rental SDHs) to a recently-established property fund are progressing well—likely to be in 4Q11-1Q12. The fund size is expected at Bt5-6bn and may yield 7.3-7.5%. We expect LH to post a significant gain from asset sales (more than 10% of total profit in FY11 or FY12). Note that the firm has rental properties at good locations in central Bangkok (Ratchadamri Road, Sathorn Road, Wireless Road, Soi Thornglor and at Promphong). Terminal 21 (serviced apartments and retail space; to launch in 4Q11) should mitigate the effect of the loss of income from the five properties (only 4% of total revenue in 1H11).