LPN Development

LPN Development Plc (LPN)
Investment thesis
Last weekend, LPN opened the first phase of Lumpini Township Rangsit-Klong-1 of 4,000 units (sales prices started at Bt639k/unit or Bt30k/sq.m). The market is likely to react negatively to the disappointing presales (about 2,000 units were booked, a 50% take-up rate of launched units). A sharp share price drop would present an opportunity to BUY because LPN has already achieved its FY13 presales target. The firm has the clearest revenue visibility of our Res Dev coverage. We suggest a good entry price would be below Bt22. Our BUY rating stands with a YE14 target price of Bt26, pegged to a PER of 12x.
Below the company’s target
The response fell far short of management’s target of fully booking the project at launch and our forecast of 70%. The key selling point was the very cheap price, but it is the biggest project ever undertaken by LPN (10,154 units in total, Bt7bn in total value, 50 buildings, eight floors per building on 94 rai). Thus, fully booking the first phase at launch proved an unrealistic ambition amid the economic slowdown. The 50% take-up rate is in line with the industry mean.
Revenue recognition from Rangsit will start in late FY14. The launch made for Bt1.4bn in additional presales, which pushed up secured FY14 revenue from 42% of our top-line forecast to 50%. Although the Condotown brand’s GM typically ranges 26-27%, we think there may be scope for upside at Rangist, due to the cheap land price (9% of project value). Besides, LPN plans to gradually increase sales prices. Looking ahead, the firm will launch three small projects (about Bt1bn each) in 1Q14 with revenue to be recognized in 4Q14.
LPN has now hit its FY13 presales target
YTD presales are now Bt20bn—the company’s target for this year. Additional presales from LPN Sukhumvit 24 (Bt3bn; the launch was delayed from Oct to Nov 24) will boost presales to a new record of about Bt24bn for FY13. We are fully confident that the launch will be successful, due to the good location and relatively small size of the project (less than 600 units).
Poor 3Q13 performance expected; set to improve in 4Q13
We estimate 3Q13 presales of Bt3bn (the lowest since 3Q11), down by 20% YoY and 67% QoQ. There was only a small launch in Sept—Bangna C Building (Bt1bn). We estimate a profit of Bt689m for 3Q13 (up 27% YoY but down 14% QoQ), based on a condo revenue forecast of Bt3.5bn (up 16% YoY but down 16% QoQ). Presales are expected to jump by 50% YoY and 100% QoQ to Bt6bn in 4Q13. Condo revenue for that quarter will increase 48% QoQ to Bt5.2bn  (four projects are to transfer), but fall YoY from the high base set by record 4Q12 condo income of Bt6.8bn.