LPN Development

LPN Development Plc (LPN)

Investment thesis: Last Thursday, we accompanied Mr Opas Sripayak, MD of LPN, to meet fund managers.  The feedback was positive—the firm will lead sectoral presales growth over the medium-term. LPN was the least-affected by the flooding of any developer that we cover and has seized the day—its 1H12 launch schedule is aggressive. The firm’s revenue visibility is the best of the big five home-builders. Its stock has rallied 29% since our Oct 26 rating upgrade, but the dividend remains attractive—we expect a 6.7% annualized yield for 2H12 and 5.9% for FY12. Our YE12 target price of Bt14.40 stands, pegged to a 10x  PER.
Realistic FY12 growth targets: LPN guidance suggests new records for FY12—10% growth in condo revenue (to Bt13.2bn) and 12% presales expansion (to Bt16bn). The targets are realistic, we believe, as the presales backlog at YE11 secured almost 80% of the firm’s FY12 revenue target. The planned FY12 launch value is Bt15-16bn (at a minimum)—11 projects (most of the land plots have already been secured) will boost presales this year.
1H12 presales will outperform peers: The impressive presales will continue in 1H12 followed by growth of 40% YoY and 200% QoQ in 4Q11 bookings (beating the sector—four condo launches). About 80% of FY12 launches are scheduled for 1H12 (Bt13bn—Bt6bn in 1Q12 and another Bt7bn in 2Q12). Thus, we anticipate that LPN’s 1Q-2Q12 presales will outperform the sector (both YoY and QoQ growth for LPN). The firm will launch four projects in 1Q12 (MegaBangna Phase II, and three developments on Sukhumvit Road), another four in 2Q12 (Rattanathibet, Ratchayothin, Jomtien Beach and a new area—not Bangkok) and three more in 3Q12 (Ramkhamhaeng, Naklua Pattaya and a new area). 
Record high revenue in 4Q12: LPN will finish construction of nine projects in FY12. The quarterly revenue schedule breaks down as Bt2bn in 1Q12, Bt1bn in 2Q12, Bt3.3bn in 3Q12 and a record high of Bt6-6.7bn in 4Q12. In the interim, strong 1H12 presales will mitigate the effect of subdued 1H12 revenue on the stock price.
Pornsanti to launch THs: Pornsanti, which is 99.99% owned by LPN, is targeted to contribute 10% of revenue and presales over the long-term (perhaps Bt500-800m in FY12). Two TH projects will launch in 1Q12 (at Ratchayothin and Ladprao). The diversification is aimed at smoothing out LPN’s sales and earnings profiles.