LPN Development

The market will react positively to news that Lumpini Condotown Rangsit (total project value Bt7bn, about 10,000 units) received EIA certification yesterday, boosting FY15 revenue clarity. In the short-term, LPN will lead the 4Q14 presales and profit growth of our ResDev coverage. The stock trades at an FY15 PER of 11.5x. It has historically traded at PERs ranging 14-15x PER during good years, such as FY12-13. LPN deserves a re-rating in anticipation of record earnings in FY15, up 49% YoY (it is our favorite stock in ResDev space). Our YE15 target price remains Bt30, pegged to a PER of 14x (2SDs above its FY06-13 mean). 

FY14 earnings forecast cut, but hefty FY15 profit growth ahead

We have revised down our FY14 core profit projection by 9% to reflect the disappointing 3Q14 results, but our FY15 forecast stands unchanged. For FY14, our residential GM assumption declines 0.2% and our SG&A/sales assumption rises 0.9%, as we expect promotions to sell unsold inventory by YE14. But presales secure 85% of our FY14 residential revenue forecast and 86% for FY15 —the most of our coverage. LPN is expected to deliver record residential revenue of Bt18.5bn in FY15 (97% condo, 3% low-rise), up 41%, and earnings growth of 49%. 

There is scope for upside to our condo GM assumption from a changed product mix (bigger proportionate contributions by the high-end Park/Place brands). We currently assume GM expansion of 0.7% YoY for FY15 to 32.75% (LPN targets 33%). The firm will transfer seven condos next year; five of which will yield fat GMs of 32-34%. If the weighted mean GM were to exceed our assumption by 50 bps, there would be 3% upside to our FY15 profit forecast.

Five project launches in 4Q14 to boost FY16 revenue visibility

LPN has five projects (together valued at Bt8bn) slated to launch in 4Q14—Lumpini CondoTown Romklao-Suvarnabhumi (Bt1.5bn), Ville Onnut-Ladkrabang 2 (Bt1.1bn), Seaview Chaam (Bt1.2bn), and ParkBeach Chaam (Bt1800m), and the re-launch of Township Rangsit-Klong 1 (Bt3.4bn, 54% booked, but LPN  had frozen bookings pending EIA certification). The 4Q14 launches will mainly add to FY16 revenue visibility. Only Township Rangsit-Klong 1 will transfer in 2H15.

Outstanding 4Q14 presales and earnings expected

Management confirms an FY14 presales target of Bt20bn, implying bookings for the quarter of Bt6.9bn, up by 20% YoY and 140% QoQ in the face of a QoQ decline among our ResDev coverage as a whole. Furthermore, LPN will post its best earnings of the year for the quarter, driven by the top-line. Condo revenue is forecast to jump by 25% YoY and 146% QoQ to Bt5bn. Core profit is modeled at Bt826m, up by 49% YoY and 47% QoQ.