LPN Development

LPN Development Plc (LPN)
 

What’s new? Last weekend, LPN launched three condo projects, all of which received good responses—Bt1.5bn in presales of Bt2.8bn in launch value. The details: 1) a 60% take-up rate for the Bt1.5bn launch of Lumpini Mega City Bangna, which encompasses two projects and brands—CondoTown (Bt39K/sq.m) and Ville (Bt45K/sq.m), 2) a 50% take-up rate for Lumpini CondoTown Ramintra-Lad Pla Khao (Bt970m) and 3) a 50% take-up rate for Lumpini Ville Naklua-Wong Amart (Bt300m; Bt45K/sq.m.).
Comment: The average take-up rate of 55% for the condos was slightly above our forecast of 50% and somewhat better than the consensus expectation. In the current environment it is no longer realistic to assume that LPN’s projects will be fully booked within two weeks of launch. The additional presales of Bt1.5bn push up the secured portions of our revenue forecasts to 87% for FY12 (from 77%) and to 18% for FY13. LPN’s presales backlog has expanded another 11% to Bt14.6bn. Two projects—Mega City Bangna and Ramintra-Lad Pla Khao—should be ready to transfer in 4Q12; Naklua-Wong Amart will start recognizing revenue in 2013.
LPN conservatively guides for GM of 27% for the CondoTown brand and 30% for Ville. But there is scope for GM upside—sales prices generally rise as the condos near completion. We also noticed that the cost of the land plots for Mega City and Naklua-Wong Amart developments were very cheap—just 12% and 3%, respectively, of the two projects’ respective values.
Action: Although LPN trades at an FY12 PER of 9.5x—significantly above its FY05-11 mean of 7.7x—we anticipate a further premium on the multiple, supported by: 1) a 4Q11 presales outperformance of the sector (QoQ growth for LPN but a drop for the sector), 2) clear FY12 earnings visibility and 3) the strongest yield among the top-five names (an expected final DPS of Bt0.44, equal to a 6.4% annualized yield). Despite its recent share price rally (up 34%) since we upgraded our rating on Oct 26, we suggest continuing to let profits run—there is more juice in LPN, we believe. Our TRADING BUY rating stands.