Land & Houses

Land & House Plc (LH)

What’s new? According to Prachachart Thurakit newspaper, Chulalongkorn University will soon announce the winning bid for the 30-year lease of 13 rai of land it owns near Samyan intersection. The location is close to Samyan MRT station. Agency Chula, the land manager, said it short-listed tenders by LH and TCC Land Co Ltd. Both firms offered mixed retail-hotel projects—LH’s plan is for a 400-unit 4-star hotel; TCC’s is for a 1,000-unit 3-star hotel. Agency Chula said the LH plan offers a Bt100m higher total return to the land owner over the 30-year lease period than TCC Land’s plan.
Mr Naporn Sunthornchitcharoen, an executive director of LH, suggested a total project value of Bt10bn to develop the land plot (total land cost plus investment cost). 
Comment: Neither we nor the consensus have yet factored the project into our model. LH guided for an IRR of 12%. If LH were to get the plot, it would create NPV of Bt0.12/share (if LH were to fully own the project). Construction would take 3-4 years and the development probably wouldn’t initially be profitable. If LH were to win the tender, it may accelerate asset divestment in order to fund the Samyan project. Thus, gains from asset sales should boost the share price.
Action: The news could boost sentiment toward LH. Regardless, we maintain our BUY call on the firm’s expected 4Q11 profit leadership of the Residential Developer sector and through 1H12 as a play on asset divestment (scope for earnings and dividend upside). Our YE12 target price of Bt7 stands, based on a sum-of-its-parts valuation—a housing PER of 16.4x (LH’s FY05-11 mean) and Bt2.7/share of investment value. The stock trades near its mean FY05-11 PER, but the discount would be much deeper with estimated gains from asset sales included (Bt500-600m or around Bt0.05/share).