LPN Development

LPN Development Plc (LPN)
Investment thesis
LPN entails only negligible risk of earnings downside, due to its clear top-line visibility—its presales backlog at end-June secured 72% of our revenue forecasts for FY13-14. The launch dates for two big projects (Rangsit and Sukhumvit 24) have been postponed from Sept to Oct, but the revenue recognition outlook is unchanged (FY14 and FY15).  Our YE13 target price remains Bt23, pegged to a PER of 12.5x. BUY!
Fully confident in achievability of FY13 performance targets
LPN is virtually certain to achieve its FY13 presales target of Bt20bn, as 8M13 bookings already secure 90% of that target. Assuming only a 50% mean take-up rate for launches in 2H13 (at least eight projects totaling Bt9.1bn for which all the land plots have been secured), FY13 presales will beat the target by 10% (Bt22bn). Assuming a 70% mean take-up rate for 2H13 launches, bookings would exceed the target by 20% (Bt24bn).  
The downside risk to LPN’s FY13 condo revenue target (Bt15.2bn) is negligible, as end-August presales-for-transference-by-YE13 secure 95% of its target (and our model). Mega Bangna C building (Bt1bn) will start transferring in Sept. We forecast revenue of Bt4bn in 3Q13 (up 33% YoY), and Bt5.2bn in 4Q13 (the best quarter of the year). Four projects will start transferring in 4Q13 (Bt8.3bn in total value; 82% booked), which will mean QoQ profit growth (but earnings will drop YoY, due to the high base set comparison by the record 4Q12 bottom-line of Bt1.2bn).
 Impromptu 4Q13 launches will secure FY14 revenue plan
We have conservatively shifted back our revenue recognition expectation for Lumpini Park Rama IX (Bt2.6bn in presales) to 1Q15 (from 4Q14) in order to account for drawn-out EIA certification procedures for the project. Thus, FY14 revenue visibility (secured by bookings) declines to 42% of our top-line forecast from 56% previously (but secured FY15 revenue rises to 46% from 33%). We expect LPN to identify and launch two or three small projects (values of ~Bt1bn/building) in 4Q13 that would transfer next year, fully compensating for the effect of delayed recognition of income from Park Rama IX.
Our FY14 condo revenue forecast stands at Bt17.5bn (up 15% YoY). LPN currently owns six land plots (Bt8.1bn in total project value), which it plans to launch as projects in 4Q13 and transfer in 2H14 (see Figure 1).
The best balance sheet in the sector
In the weakening economic climate, developers with solid balance sheets have a competitive advantage because they can still easily buy new (good) land plots. In such an environment, banks prefer to lend to firms with clean balance sheets; LPN’s is the cleanest of our ResDev coverage—a 0.8x debt/equity ratio at end-June (versus a 1.4x mean for our coverage) and a 0.3x of net gearing ratio (an average of 0.9x).