LPN Development

LPN Development Plc (LPN) 

Profit was In line with our estimate

LPN posted a net profit of Bt743m for 4Q14 (the best quarter of FY14), up by 34% YoY and 32% QoQ. The result was in line with our estimate and the street. Thus, FY14 net profit was Bt2.0bn, down 13% YoY, as modeled.   

We were positively surprised by the dividend payout rate, which was higher than expected. LPN announced a DPS of Bt0.80 for FY14 operations implying to a 58% payout rate (we had assumed 52%). Given a Bt0.26 DPS for 1H14, the final DPS is Bt0.54 for 2H14 (our assumption was Bt0.45; the consensus was Bt0.46), a 2.6% simple yield or a 5.2% annualized yield (XD on Feb 24; payment on April 10). 

Results highlights

The strong 4Q14 earnings growth was driven by top-line expansion and a fatter GM. Residential revenue rose by 5% YoY and 76% QoQ to Bt4.2bn, as three condos started transferring—Lumpini SeaView Jomtien (Bt1.3bn; 37% booked), Lumpini Place Udon-Posi (Bt2.1bn; 72% booked) and Lumpini Ville Onnuch Pattanakarn (Bt1.9bn; 51% booked). Condo GM rose by 3.8% YoY and 1.6% QoQ to 33.3% in 4Q14 because of a great GM for Lumpini Park Udorn-Posi. The S&A/sales ratio dipped 0.4% YoY to 12.1% in 4Q14. Net gearing eased from 0.6x at end-Sept to 0.5x at YE14.

Outlook

LPN will post strong YoY profit growth for 1Q15, driven by top-line expansion and a fatter net margin, but it will fall QoQ, as usual (first-quarter earnings are normally the lowest of the year). LPN will start transferring Lumpini Park Suksawat-Rama 2 in 1Q15 (Bt1.1bn; fully booked). Net margin is expected to fatten YoY, due to SG&A expense control.

What’s changed?

We expect LPN to lead earnings growth among our ResDev coverage this year (superior core profit growth of 38% for FY15); it also has the clearest revenue visibility. We estimate that cumulative presales at end-March will secure 90% of our FY15 residential revenue forecast against an average of about 50% for our coverage.   

Recommendation

The share price has slipped 5% YTD, pricing in expectations of weak FY14 earnings. LPN is our ResDev top pick, due to its clear revenue visibility and high profit growth profile. Our BUY rating stands with a YE15 target price of Bt27, pegged to a PER of 14x (2SDs above its FY06-14 mean). The stock trades at an FY15 PER of 11.1x, 0.6SD above its FY06-14 mean. LPN deserves a valuation re-rating, we believe, on anticipation of it achieving record high earnings for FY15 (its last record profit was for FY13). Launches in March—Lumpini Place Nakhon In (Bt1.8bn) and the re-launch of Township Rangsit-Klong 1 (Bt3.6bn)—will drive presales during that month, providing further FY16 revenue visibility.