LPN Development

LPN Development Plc (LPN)

Investment thesis: We have changed our Residential Developer sector theme call from swift presales recoveries to impressive earnings deliveries for 2H12. LPN is our conviction BUY rating, premised on its huge presales backlog to transfer, Sept 2012-June 2013. We have rolled over our investment horizon to YE13 with a new target price of Bt21.60 (up from Bt19 for YE12), pegged to an unchanged target PER of 12.5x (2SDs above its FY05-11 mean). Given expected record profits for 4Q12 and FY12-13, a valuation re-rating is likely. LPN trades at an FY13 PER of 10.4x; its Oct 2007 peak was 13.6x.
Will hit FY12 presales target soon: YTD presales total Bt14bn 88% of LPN’s FY12 target of Bt16bn. We anticipate 3Q12 presales of Bt3.9bn, up 165% YoY but down 37% QoQ (presales surged in 2Q12 to Bt6.1bn, due to a big promotion). We expect the firm to post 9M12 presales growth of 50% YoY (93% of the full-year target). Adding in the launch of Condotown Chonburi (Bt2.5bn, starts at Bt550K/unit—LPN’s lowest price) on Oct 6 and a new project in Dec in an outer suburb of Bangkok (no details yet), FY12 presales are likely to beat the company’s target by 6%.
Clear mid-term revenue visibility: LPN has 11 condos slated to complete construction in 3Q12-2Q13 (worth Bt24bn; 73% booked). Current presales secure 95% of our 3Q12 revenue forecast, 97% of 4Q12, 84% of 1Q13 and 82% of 2Q13. Its TH backlog of Bt583m will transfer in 2H12. In Sept, LPN’s transference will set a new record of Bt900-1,000m/week (the last peak was Bt625m/week with the transference of Park Pinklao in 2Q11).
Heading to record high 4Q12 results: Six condo projects will drive record revenue of Bt7.6bn in 4Q12 (up by 755% YoY and 154% QoQ), making for an unprecedented core profit of Bt1.2bn (56% of our FY12 forecast). We expect condo GM of 31.0% for 2H12 (30.3% in October 2011).
Strong YoY earnings growth to continue in 1H13: LPN will sustain impressive YoY results expansion in 1H13, as two condo projects will start transferring in 1Q13 (Mega Bangna and Sukhumvit 109) and another three in 2Q13 (Sukhumvit 77, Jomtien Pattaya and Naklua-Wongamart). We expect strong YoY top-line growth of 45% for 1Q13 and 145% for 2Q13.