LPN Development

LPN Development Plc (LPN) 

 

Investment thesis

LPN’s share price will react positively to two pieces of good news after the long weekend; the relaunch of its Lumpini Township Rangsit-Klong 1 Phase 1 received positive feedback and the value created with its new business model, which links it with a strong partner, the Crown Property Bureau (CPB). LPN trades at FY15 PER of 9.8x, near its FY16-14 mean. The re-rating valuations are apt as LPN is to have strong core earnings growth of 38% for FY15 (backlogs secure 93% of our FY15 residential revenue forecast). New condos for FY15 will also boost its FY16 earnings visibility. We maintain our BUY rating at a YE15 target price of Bt27, pegged to a target PER of 14x (1.5SDs above its FY06-14 mean). 

Joint condo development with Crown Property Bureau 

We are optimistic about LPN’s new business model, for its win-win strategy of leveraging its condo and community-management expertise with the CPB’s extensive Bangkok land banks to develop condo projects. In a leasehold deal with the latter providing land, the project policy is to provide affordable housing for the low-to-middle-low segments, the first project of which will be at Soi Phai Singto, near the Queen Sirikit National Convention Center MRT station. It will have: a total project value of Bt260m; 192 units; eight floors; and, a 12-month construction period. Despite no details on profitability policy, it would comprise a profit-sharing deal, in our view. We expect more sizable “co-condos” in the future.     

Rangsit development presales unlocked over weekend 

Response to the Lumpini Township Rangsit relaunch (Bt3.4bn of value) was strong over the long weekend, as the take-up rate jumped recently from 40% at YE14 to 74%. The project will start transferring in Oct 2015 and revenue contribution is promised to reach Bt2bn, or 12.5% of our FY15 condo revenue forecast. GM is 27%, in line with its CondoTown brand policy. The second phase (Bt2.6bn) will kick off in 4Q15.

To post 1Q15 presales growth YoY but unattractive profit 

LPN is expected to take total presales of Bt3.5bn for 1Q15, an 8% YoY gain but a 15% QoQ decline. LPN launched only Lumpini ParkBeach Cha-am—a project valued at Bt1.1bn—in Feb, with a sound 75% take-up rate. We expect presales of Bt4.5-5bn in 2Q15, a jump QoQ boosted by the relaunch of the Rangsit project, new launches of two condos valued at Bt4bn (see Figure 3). We estimate an unattractive 1Q15 result (down YoY and QoQ) then impressive profit in 2Q15 (leaping YoY and QoQ).     

New launches in FY15 to boost FY16 earnings visibility  

Under our coverage, LPN is only the firm that will be able to transfer its FY15 launches in FY16 due to its short construction timelines. Assuming a 50% take-up rate at new eight condos (in Figure 3), it will add presales of Bt9bn and push our FY16 residential revenue visibility from 29% (factoring in the 75% booked at ParkBeach Cha-am in 1Q15) to 77%.