Land and Houses

Land and Houses Plc (LH)

Above all expectations: LH reported a core profit of Bt1.1bn for 2Q12, up by 25% YoY and 22% QoQ. The result was 17% above our estimate and 12% ahead of the consensus, mainly due to better-than-expected housing revenue (we had assumed Bt4.9bn; the firm posted 5.4bn) and a 1.3% fatter housing GM than modeled. A Bt256m marked-to-market gain from investments made for a net profit of Bt1.4bn, up by 30% YoY but down by 3% QoQ (in 1Q12, LH booked a Bt536m gain from asset sales to a property fund).
The firm announced an interim DPS of Bt0.20, a 5.1% annualized yield. XD on Aug 24, payment on Sept 12.
Results highlights: The YoY and QoQ core profit jump was driven by impressive housing sales growth of 23% YoY and 25% QoQ. Low-rise comprised 85% of housing revenue. The Key Prachachuen was the main condo revenue contributor in 2Q12. In a positive surprise (and better than management guidance), housing GM rose to 33.3% from 32.8% in 2Q11 (31.9% in 1Q12), due to good low-rise GM. Despite revenue expansion, the SG&A/sales increased from 14.2% in 2Q11 to 15.0% in 2Q12 because of higher marketing expenses (three new condos launched in May).
Profit-sharing from affiliates rose by 17% YoY and 1% QoQ. LHBANK profit increased both YoY and QoQ, but results for HMPRO, QH and QCON were mixed. Net gearing rose from 0.70x at end-March to 0.82x at end-June. 
Outlook: We forecast strong YoY and QoQ earnings growth for 3Q12, led by housing revenue. The Key Changwattana condo (Bt1.9bn; 90% booked) starts transferring in 3Q12.
What’s changed? For the time being, we maintain our model unchanged. 1H12 core profit represents 45% of our FY12 forecast (47% of the consensus). However, if housing GM were to beat our assumption, there would be scope for upside to our model (1H12 GM was 32.7%; our FY12 assumption is 31.5%).  
Recommendation: LH says that the YTD performance has exceeded the firm’s internal projections (both the speed of the housing sales recovery and the scope for price rises). The stock trades at an FY12 PER of 15.5x, a discount to its FY05-11 mean of 16.4x. Our BUY rating stands with a YE12 target price of Bt8.40 (SOTP, target housing PER of 19x).