LPN Development
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LPN Development Plc (LPN)
Low-end player with premium performance
LPN is expected to post robust 2Q13 net profit growth of 407% yoy and 107% qoq. Buoyant 311% yoy growth in transfers and an expanding gross margin were probably the key drivers. 2H13 earnings are expected to be even more favourable, backed by solid backlog. We keep our EPS estimates and target multiple of 14x CY14 P/E (2 s.d. above its 6-year mean for highest ROEs vs. peers and a strong balance sheet). Reiterate Outperform with catalysts still expected from even stronger 2H13 earnings performance and dynamic new launches.
What Happened
We expect LPN to report 2Q13 net profit of THB745m, surging 407% yoy and 107% qoq. If this materialises, 1H13 net profit will account for 40% of our FY13 estimate of THB2.8bn (still 2% above consensus). The key drivers were likely buoyant sales revenue growth (311% yoy, 78% qoq), a wider gross margin of 33.6% (vs. 33.3% in 1Q13, 32.7% in 2Q12) and a narrowing mismatch between sales and SG&A expenses given a lower SG&A ratio of 12.2% (vs. 15.7% in
1Q13, 18.9% in 2Q12). There were two newly-finished condos (Lumpini Mega City Bangna and Lumpini Park Beach Jomtien) in the quarter, which contributed 70% of total revenue while the rest was from finished unsold inventory where prices appeared to have been marked up, therefore yielding better gross margins than originally budgeted.
What We Think
We stay positive on LPN. We expect even stronger 2H13 results due to a larger bulk of newly-finished condo transfers. Buoyant 1H13 presales of THB15.5bn (forming 78% of LPN’s FY13 target of THB20bn) and higher downpayment requirements should strengthen visibility and improve backlog quality. We expect the performance of LPN’s two new launches in Sep, one from the extremely low-end segment and the other a luxury condo in Bangkok’s CBD, to be resilient amid faltering consumption.
What You Should Do
Stay invested. Structural changes in its business model and its well-established brand appear to
dovetail with the sector’s shift towards real demand. Amid the current market volatility, LPN seems
to be investors’ preferred defensive investment given its 4% yield
