Land & House

Land & House Plc (LH)
Upgrading PT to Bt11.5 and rating to BUY. We like LH’s focus on segments where demand is real and sustainable, i.e. low-rise housing, plus its relatively low exposure to the condo market, where outlook is dull and hit by the current political turmoil. Presales in February showed signs of recovery YoY and QoQ driven solely by low-rise and we are comfortable with our forecast. LH has impressed with a steady improvement in gross margin and in controlling costs. This prompts us to raise 2014-2015 forecasts. With a favorable 3-year CAGR of 13% during 2013-2016, we raise PBV valuation for its property development business to 3.5x from 3.0x and roll our valuation to end-2014, which raises PT to Bt11.5/share from Bt10/share. TTR is an attractive 30%, and we upgrade to BUY from Neutral.
Good signs of recovery in February, with low-rise presales up YoY, QoQ. The large 80% of its property development revenue from low-rise housing (single detached house and townhouse), confirms a healthier outlook. Over 2003-2013, SDH demand was sustainable in the range of 13K-15K units a year, according to AREA. 
Costs under control. LH has been widening its margin steadily to achieve 35.8% in 2013, a level not seen since 2004, while at the same time reducing marketing expense/presales and administration expense/total revenue by 60bps and 70bps respectively. Peers are moving the other direction - proving LH’s better cost control. 
Raise property profit 8.8% to Bt4.7bn (EPS Bt0.5) in 2014 and 8.9% to Bt5.3bn (EPS Bt0.5) in 2015, incorporating the better gross margin and cost control. Even taking a conservative stance that the slow sales seen in February will continue throughout the year, our revenue forecast for low-rise is reachable, and there may be some upside from condos. Current backlog of Bt14.8bn secures 25% of our 2014 forecast. 
Issues warrant. Dilution: No to BVPS, yes to EPS. LH’s board approved the issue of a three-year warrant to existing shareholders at 5 common shares to 1 warrant; XW on April 29. Exercise ratio is 1:1 at Bt3.5/share. This doest not dilute BVPS since exercise price is the same as BVPS estimate for 2014; there will be an EPS dilution of 16.7%. The move is to improve liquidity and allow it to take investment opportunities. 
Final DPS of Bt0.15, yield of 1.6%, XD on April 29; including interim, gives a 2013 DPS of Bt0.4 (yield of 4.3%). This implies dividend payout ratio of 80%, down from 100% in 2012, and below SCBS and market expectation.