LPN Development

LPN Development Plc (LPN)

Investment thesis

We accompanied Mr Opas Sripayak, MD, to meet institutional inventors yesterday. He unveiled the (worst-case scenario) business plan for this year. LPN is confident that it can deliver condo sales revenue of at least 36% in FY15 to Bt16bn and guides for scope for upside to Bt18bn. Weak FY14 presales and revenue are behind us. In the interim, LPN will post the best 4Q14 presales and profit growth of our coverage. We like the stock for its earnings growth leadership and clear top-line visibility. Market anticipation of a record profit for FY15 will prompt a valuation re-rating, we believe. Our YE15 target price is Bt27, pegged to a PER of 14x (2SDs above its FY06-13 mean).

Strong 4Q14, despite failure to deliver FY14 targets

Mr Opas guided for FY14 presales of Bt17bn, down from record bookings of Bt24bn in FY13. Launch value last year totaled only Bt13bn, down 32% YoY. Posted FY14 residential revenue will fall about 12% short of LPN’s target of Bt13.6bn (He guided for Bt12.3bn—Bt11.bn in condo sales, Bt600m low-rise). Despite the weak FY14 presales and revenue, LPN will report presales and profit growth leadership of our coverage for 4Q14—presales of Bt4bn (up 38% QoQ against a 20% dive for our coverage) and residential revenue of Bt4.2bn, up by 4% YoY and 22% QoQ. 

Strong business growth planned for FY15 with scope of upside

LPN plans FY15 condo launch value expansion of 54% YoY to Bt19bn (11 projects, see Figure 2). The firm aims for Bt20bn in presales this year, up 17% YoY—Bt13bn in inventory clearance and Bt7bn in presales for condos launched this year. Mr Opas conservatively assumes take-up rates for FY15 launches of 30-50%. In 1Q15, LPN plans to launch ParkBeach Cha-am (Bt800m), Ville Nakhon In (Bt1.8bn), the re-launch Township Rangsit 1 (Bt3.4bn) and a condo in an as yet undisclosed location (Bt1.5-2bn). 

The revenue target for this year is Bt16bn, up 36% YoY, but LPN believes there is scope for upside to Bt18bn. The firm has a presales backlog of Bt19bn, of which Bt14bn is slated for transfer in FY15, securing 87% of its residential revenue target. The FY15 quarterly income profile is smoother than was FY14’s—one condo will start transferring in 1Q15, two in 2Q15, another two in 3Q15 and two in 4Q15 (in contrast, last year only one small condo transferred in 1Q14, none in 2Q14, and three condos each in 3Q14 and 4Q14).

Guidance for fatter GM & a lower SG&A/sales ratio than our model

Mr Opas thinks FY15 GM will be boosted by the transference of Park-branded high-margin projects this year—Lumpini Place Suksawad-Rama II, Srinakarin-Huamak, Ratanathibet-Ngamwongwan and Rama IX. GM would beat our assumption if it rose 0.2% YoY. Mr Opas also guided for a SG&A/sales ratio range of 10-12% (12% in our model).