Land and Houses

Land and Houses Plc (LH)

 

Investment thesis

LH will post a record 4Q14 bottom-line and there is scope for upside to our dividend assumption. But we forecast only 9% profit growth for FY15. Regardless, LH trades at 10% below its mean FY06-14 PER. We have cut a YE15 SOTP-derived target price to Bt10.60 (from Bt12) to factor in a trimmed FY15 earnings forecast (an unchanged housing PER peg of 20x) and lower market value for investments (from Bt3/share to Bt2.80). 

Terminal 21 sold to LHSC—short-term gain, long-term loss of income

On Dec, 26, 2014 LH sold its Terminal 21 shopping mall (97,905 sq.m of space) to a new REIT, LH Shopping Centers Leasehold REIT (LHSC). The fund size is Bt5.9bn (a 5.7% discount to appraised value). The firm will realize a huge gain and will pay a bumper dividend. As LH holds 9% of LHSC, we estimate a Bt1.1bn net-of-tax gain from the sale—15% upside to our FY14 profit forecast. We now assume a total DPS for FY14 operations of Bt0.55 (we previously assumed Bt0.47), which implies a final DPS of Bt0.3 (XD in April, payment in May). Note that LH paid an interim dividend totaling Bt0.25/share for 1H14 operations in August.

The firm will post a record net profit of Bt3bn in 4Q14, up by 95% YoY and 76% QoQ, due to the gain. However, we have cut our FY15 core earnings forecast by 2% to factor in the absence of rental income from Terminal 21 (which previously supplied about one-fourth of LH’s rental revenue). 

Pre-sales likely to have missed target, but revenue as guided 

FY14 pre-sales are likely to have fallen a little short of LH’s target of Bt32bn, due to weak demand in December. But despite the fact that FY14 was a difficult year, we still estimate 5% YoY pre-sales growth to Bt31.8bn. The firm will achieve its FY14 residential revenue target of Bt25bn, up 9%.

FY15 will be a challenging year

We conservatively forecast 4% residential revenue growth and 9% core earnings growth for FY15 (against 16% mean profit expansion for our ResDev coverage). The key challenge is recruiting new SDH bookings—revenue visibility remains low (presales secure only 11% of our FY15 residential revenue forecast). Note that the value of condos due for completion in FY15 of Bt6.2bn is 8% lower than the FY14 number. The condo transference schedule is concentrated in 4Q15—Ease Rama II condo is slated to transfer in 1Q15, none will transfer in 2Q15, a small condo in Chiangmai in 3Q15 and three sizable condos in 4Q15 (The Room Pan Road, The Room Rama IV and The Key Wuttakat). 

Income from investments

Profits from LH’s investments (mainly HMPRO, LHBANK, QCON, and QH) comprise about one-third of its bottom-line, so constitute an earnings cushion. The firm also owns a 264-unit apartment building in Oakland, California (Bt3.3bn). If the building were sold it would boost earnings.