Land and Houses

What’s new? LH sold its Indonesian assets for a total price of $12m, or Bt378m. The company will realize a net profit (after tax) of Bt347m in 4Q11. LH decided to divest its assets in Indonesia because of the low return on investment and the uncertain outlook.
Background: LH invested in five project companies in Indonesia, starting 1996, for a total cost of $15.9m, which gave it a 19.98% stake in each project (property developments in Jakarta). The projects essentially collapsed with the Asian crisis (Indonesia was hit in 1998). Thus, LH has set impairments for the investments. In 1Q11, the firm set a final impairment of Bt622m, giving a balance sheet investment value of zero.
Comment: The divestment is in line with management guidance that LH would sell some assets in FY11-12. The sale of the Indonesian investments will not affect our core earnings model. However, our FY11 net profit forecast rises 8% to Bt4.8bn, due to the Bt347m one-time gain from the divestment. The gain will bolster 4Q11 earnings (which were dampened by flooding in Bangkok). We expect a net profit of around Bt1.1bn for 4Q11, down a bit YoY but up QoQ. 
We noted in our Nov 17 report that LH will be an asset divestment play in 1H12. Looking ahead, we expect it to sell other investments, particularly non-core businesses: 1) QCON (21% stake) and 2) rental assets to a property fund (serviced apartments and rental SDHs). We calculate that the Q-CON divestment would create a net (after-tax) gain of Bt152m (Bt0.01/share) to LH’s FY12 net profit (4% upside). The asset sales to the property fund (expected fund size of Bt5.4bn, assuming no LH stake in it) are expected to add Bt1bn (Bt0.10/share), or 27% upside, to our FY12 net earnings projection.
Action: The asset monetization plan will boost bottom-line growth ahead of peers in 1H12. We maintain our BUY rating with a YE12 target price of Bt6.60, based on a sum-of-its-parts valuation—a housing PER of 17.3x (LH’s FY05-10 mean) and Bt2.52/share of investment value. The stock trades at a 7% discount to its mean FY05-10 PER, but the discount would be much deeper with our estimated gains from asset sales factored in (1SD below its mean). 

What’s new? On Dec 26, the INTUCH board approved an interim DPS of Bt2.34 (Bt7.5bn in total) for the period starting August 11, 2011 to December 25, 2011. The interim dividend will be paid from the one-off Bt7.49bn gain (net of expenses) from the 2% sale of its investment in Advanced Info Service Plc (ADVANC) to Singtel Strategic Investment Pte Ltd (61m shares at Bt130 apiece on Dec 23, 2011). The XD is Jan 5, 2012 and the payment date is Jan 23, 2012. 
Analysis: The special dividend payout is positive and was anticipated. The DPS of Bt2.34 is in line with the consensus estimate of Bt2.00-2.48/share, but above our earlier estimate of Bt1.70/share (we had assumed an ADVANC sales price of Bt125/share and a 70% dividend payout, but the ADVANC sales price was actually Bt130/share and the dividend payout ratio was 100% of INTUCH’s gain after deducting expenses). The special dividend of Bt2.34/share translates into a 5.5% yield. Including the recurring Bt3.16 DPS paid during FY11, the total FY11 dividend amounts to Bt5.50/share—a 12.9% yield.   
In the absence of a special dividend in FY12, we estimate a DPS of Bt3.86, a 9% yield, assuming a 100% dividend payout ratio from consolidated net profit. Forecast INTUCH core profit growth of 16% will be driven by earnings expansion of 12% for ADVANC and a THCOM bottom-line jump of 873%. ADVANC’s FY12 profit growth will be led by both data and handset revenue increases. THCOM’s FY12 operational turnaround will be driven by the divestment of Mfone and a jump in IPSTAR income with full-year recognition of receipts from MEASAT of Malaysia and NBN of Australia and the sale of remaining IPSTAR bandwidth allocated to Japan to two Japanese telcos. 
Action: We have revised down our DCF-based YE12 NAV target price (including the 3G license) by 4% (from Bt61.80 to Bt59.60) to factor in lower YE12 cash on-hand, due to a bigger-than-expected special dividend. There is a 39% upside to our DCF-based NAV (including 3G license). Based on yesterday’s market prices for ADVANC (Bt142.50) and THCOM (Bt10.40), INTUCH’s market price-based NAV is Bt50 (including a 10% discount for being a holding company). We think INTUCH is a good indirect 3G investment play for FY12—the direct 3G play, ADVANC, is now nearing full value.

Land and Houses
Gain from divestment will mitigate bad 4Q11 result
What’s new? LH sold its Indonesian assets for a total price of $12m, or Bt378m. The company will realize a net profit (after tax) of Bt347m in 4Q11. LH decided to divest its assets in Indonesia because of the low return on investment and the uncertain outlook.
Background: LH invested in five project companies in Indonesia, starting 1996, for a total cost of $15.9m, which gave it a 19.98% stake in each project (property developments in Jakarta). The projects essentially collapsed with the Asian crisis (Indonesia was hit in 1998). Thus, LH has set impairments for the investments. In 1Q11, the firm set a final impairment of Bt622m, giving a balance sheet investment value of zero.
Comment: The divestment is in line with management guidance that LH would sell some assets in FY11-12. The sale of the Indonesian investments will not affect our core earnings model. However, our FY11 net profit forecast rises 8% to Bt4.8bn, due to the Bt347m one-time gain from the divestment. The gain will bolster 4Q11 earnings (which were dampened by flooding in Bangkok). We expect a net profit of around Bt1.1bn for 4Q11, down a bit YoY but up QoQ. 
We noted in our Nov 17 report that LH will be an asset divestment play in 1H12. Looking ahead, we expect it to sell other investments, particularly non-core businesses: 1) QCON (21% stake) and 2) rental assets to a property fund (serviced apartments and rental SDHs). We calculate that the Q-CON divestment would create a net (after-tax) gain of Bt152m (Bt0.01/share) to LH’s FY12 net profit (4% upside). The asset sales to the property fund (expected fund size of Bt5.4bn, assuming no LH stake in it) are expected to add Bt1bn (Bt0.10/share), or 27% upside, to our FY12 net earnings projection.
Action: The asset monetization plan will boost bottom-line growth ahead of peers in 1H12. We maintain our BUY rating with a YE12 target price of Bt6.60, based on a sum-of-its-parts valuation—a housing PER of 17.3x (LH’s FY05-10 mean) and Bt2.52/share of investment value. The stock trades at a 7% discount to its mean FY05-10 PER, but the discount would be much deeper with our estimated gains from asset sales factored in (1SD below its mean).