Land and Houses

Land and Houses Plc (LH) 

 

Investment thesis

LH’s disappointing FY15 business plan is behind us, so we look ahead to impressive 4Q15 performance in presales and revenue. The dividend for 2H15 will beat our earlier view on gains from asset sales in 4Q15. We have high conviction about its promising FY16 core profit growth forecast (17%). Our BUY rating stands at a SOTP-derived YE16 target price of Bt9.80 (housing PER of 16x and Bt3.0/share of market value of investment). LH trades at a FY16 PER of 13.8x, below 15.2x of its FY06-15 mean PER. 

No surprise over missed full-year business plan targets

LH will post FY15 presales of Bt24.9bn (82% low rise and 18% condos), down 21% YoY and below the firm’s target of Bt34bn. Poor presales in FY15 is due to weak demand and the downsizing of new launches from Bt37bn to Bt25bn (eight projects delayed). Presales of low rises, LH’s core product, are flat YoY at Bt20bn for FY15, which is good in our view. However, condo presales plunged 60% YoY to Bt4.4bn for FY15 due to the lack of new condo launches. We forecast FY15 residential revenue of Bt25bn for FY15, down 5% YoY and an 11% below its target of Bt28bn. 

Presales and earnings to jump on year and quarter in 4Q15

LH will post impressive presales and residential revenue in 4Q15 (the best quarter of the year). Presales in 4Q15 will be Bt7.8bn, a jump of 50% YoY and 36% QoQ driven by growth in low rises of 84% YoY and 58% QoQ. Residential revenue will hit a record Bt8.9bn, up 20% YoY and 67% QoQ on strong low-rise sales and the transfer of three condos (The Key Wutthakat, The Room projects at Pan Road and Rama IV). We expect 4Q15 core profit of Bt2.2bn, up 25% YoY and 52% QoQ; net profit of Bt3bn boosted by Bt800m-odd gains from Terminal 21 hotel sales to REIT. With gains, DPS for 2H15 would be Bt0.28 (over the Bt0.23 of our earlier view).

Looking for conservative blueprint for FY16 operations

LH will unveil its business plan for FY16 next week—it is likely to be conservative, in our view. FY16 presales target growth should show only a single-digit gain. However, LH should aim at double-digit growth for FY16 residential revenue. Our modeled residential revenue is Bt28bn for FY16, or 14% growth. We conservatively assume GM flattish but a 50bps lower SG&A/sales due to top-line expansion. LH plans to buy new apartments in US and develop shopping malls in upcountry Thailand. 

High earnings visibility for 2016

The earnings growth outlook for FY16 is quite prominent, with Bt19bn of condos scheduled for completion against Bt6bn for FY15. Three sizable condos are to start transferring in FY16—The Room Sukhumvit 69 in 1Q16 (Bt2.6bn in total value, 49% booked), 333 Riverside in 3Q16 (Bt7bn, 92% booked), The Room Sathorn 11 (Bt1.9bn, 32% booked) and The Bangkok Sathorn in 4Q16 (Bt7.5bn, 62% booked). Presales backlog secures 23% of our FY16 residential revenue forecast, the company’s highest on record.