Land and Houses

In line with our estimate

LH reported a core profit of Bt1.7bn for 3Q14, flat YoY and down 13% QoQ. The result was in line with our estimate and the street. Net profit dipped 6% YoY, as in 3Q13 the firm had booked a Bt160m gain (net of tax) from selling a land plot.

Results highlights 

Residential GM rose from 35.4% in 3Q13 to 36.3% in 3Q14, fully offsetting the effect of 5% YoY residential sales slippage to Bt6bn (a high base was set by 3Q13 residential sales—the peak of FY13). The residential sales breakdown was 94% low-rise and 6% condo. Low-rise sales expanded by a hefty 13% YoY and 44% QoQ. Residential GM dipped 1.0% QoQ to 36.3% in 3Q14. The SG&A/sales ratio rose from 14.6% in 3Q13 and 14.3% in 2Q14 to 15.3%, due to aggressive launches in 3Q14 to achieve record presales of Bt11bn for the quarter. Core margin was high at 26.4% in 3Q14, up by 1.0% YoY and 0.2% QoQ. 

Profit-sharing from affiliates rose 14% YoY to Bt584m, led by LHBANK, HMPRO and QH. Net gearing inched up from 0.8x at end-June  to 0.9x at end-Sept.  

Outlook 

We anticipate YoY and QoQ earnings growth for 4Q14 (a new record is possible). Low-rise sales have proved strong. Besides, two sizable condos are scheduled to start transferring in 4Q14—The Room BTS Wongwienyai (Bt1.6bn; fully booked) and Wan-Way-La-Kao Tao (Bt2.7bn; 65% booked). The firm also plans to transfer two small condos in Chiangmai in 4Q14; North 4 and North 5 (Bt160m each). 

What’s changed? 

9M14 core profit comprises 72% of our FY14 forecast (75% of the street number), which we maintain unchanged. The firm will achieve its FY14 residential revenue target of Bt25bn—9M14 sales represent 74% of the target. 

Recommendation 

We have a BUY rating on LH—the only stock in our ResDev coverage with a PER that is discounted to its long-term mean. It trades at an FY15 PER of 15.2x, below its FY06-13 mean of 15.7x.  LH will deliver its FY14 presales target of Bt32bn (9M14 presales comprise 81% of its full-year target; record presales of Bt11bn in 3Q14). Anticipation of a record profit for 4Q14 will be the next catalyst.  Also, the market anticipates that Termnal 21 will be divested to an REIT in 2015. However, we have trimmed our SOTP-derived YE15 target price to from Bt12.20 to Bt12.00 to fine-tune for the market value of investments of Bt3/share (from Bt3.30 previously). Our housing PER peg remains 20x (1SD above LH’s FY06-13 mean).