LPN Development

LPN Development Plc (LPN)

What’s new? Univentures Plc (UV) announced on Friday that it will buy LPN’s 20% stake (12m shares) in Grand Unity Ltd (Grand U) for Bt180m, or Bt15/ share (UV already holds 60% of Grand U).

The rationale behind the divestment? In our view, the scope for synergy creation between LPN and Grand U was small—LPN only helps Grand U manage after-sales service for Grand U condos (LPN will terminate the contracts following the divestment). Besides, Grand U products sometimes compete directly with LPN’s Lumpini Place condo brand—a condo price range of Bt1.5m/unit and above.
More than 10 years ago, LPN and Grand U partnered to develop condo projects from distressed assets. But there aren’t now any distressed real estate assets available to buy at knockdown prices. The two firms have separate management teams running their respective projects.  

Negligible impact on core profit without Grand U: Grand U contributed equity-sharing of Bt49m to LPN in 1H12. For FY12-14, we would have anticipated only a 3% profit contribution from Grand U per annum. Thus, our model stands unchanged.

Expect some gains: At end-June, LPN valued Grand U on its balance sheet at Bt20/share. Under normal circumstances, that would mean a Bt5/share accounting loss on the sale. But Grand U paid a dividend for the July-Aug period; we assume that Grand U’s DPS exceeded Bt5. Thus, we expect LPN to book a gain from its Grand U divestment equal to Bt0.03-0.04/share, or 2-3% of our FY12 profit forecast.

Action: The transaction will make for some upside to LPN’s FY12 bottom-line, so boost its share price. Regardless of the Grand U divestment, the stock is one of our preferred plays, premised on huge transference in Sept-Dec. LPN will post record earnings in 4Q12 (four projects to transfer). We maintain our BUY rating. For the time being, our YE12 target price remains Bt19. We will revisit our earnings model and roll over our investment horizon to YE13 soon.