LPN Development

LPN Development Plc (LPN)

Above our estimate: LPN posted a profit of Bt62m for 4Q11, down by 89% YoY and 93% QoQ, which exceeded our estimate of Bt44m, due to unexpectedly high profit-sharing from its 20% stake in Grand Unity Development, but was far short of the street number for Bt109m—condo income was less than assumed.
The firm announced a final DPS of Bt0.44 for 2H11 operations, implying a 6.3% annualized yield. XD on March 1; payment on April 11.
Results highlights: In 4Q11, condo revenue was just Bt891m, down by 76% YoY and 82% QoQ. The key revenue contributors were the remaining units at Lumpini Place Ratchayothin and Place Kluaynamthai-Rama IV. Condo GM was high at 36.0% (35.5% in 4Q11 and 32.7% in 3Q11), due to fat GMs for inventory at the two projects. The SG&A/total revenue ratio spiked at 29% for 4Q11 (12% for 4Q10 and 9% for 3Q11), due to low economies-of-scale and flooding protection expenses. Net gearing remained very low at 0.04x at YE11. 
Outlook: We expect LPN to post a YoY drop but a QoQ jump in 1Q12 profit. Two condos will start transferring during the quarter—Lumpini Condotown Nida-Serithai (Bt465m, sold out), and Lumpini Ville Lazal-Bearing (Bt920m, sold out). GM is expected to contract YoY.  
What’s changed? Additional presales from three new condos (official launches of Mega City Bangna II and Lumpini Ville Sukhumvit 109-Bearing on Feb 25, and a new condo on Sukhumvit in March) will boost secured FY12 revenue to above 90%, in our view (from 76% at YE11). We maintain our earnings projections unchanged. The dilution effect of recent ESOP issuance of 12.95m shares is negligible—less than 0.01%. 
Recommendation: The weak 4Q11 numbers are behind us—LPN will post a quick 1Q12 profit recovery. Anticipation of good take-up rates for two official launches this weekend will boost the share price (200 units booked of 370 units offered at the soft launch for Ville Sukhumvit 109-Bearing last weekend). The stock trades at an FY12 PER of 9.6x, above its FY05-11 average of 7.8x, supported by the clear earnings visibility.  Our BUY call stands unchanged with a YE12 target price of 16, pegged to a target PER of 11x.