LPN Development

LPN Development Plc (LPN) 

 

Investment thesis

We recently hosted a non-deal road show (NDR) to local funds led by LPN Managing Director Opas Sripayak. In the short-term, the market may raise concerns about the slow transfers of Lumpini Township Rangsit. But, LPN has the clearest FY16 revenue visibility from our coverage firms with deeply cheap valuations—trading at FY16 PER of only 7.5x, a 19% below its FY06-15 mean. Thus, our BUY rating stands. We have derated our PER target to 10x, near its mean (from 11x) to reflect low earnings visibility in FY17. Our new YE16 target price is Bt20 (from Bt21.5). 

Missed FY15 performance goals were expected

FY15 launches were only four condos, with total value of Bt5.9bn (three in Bangkok and one in Cha-am) against Bt12bn of launch value in FY14. The mean take-up rate for FY15 launches was 55%, which was not so bad amid the economic uncertainty. Despite few launches in FY15, LPN achieved condo presales of Bt14.5bn thanks to the successful strategy of inventory sales of Bt11bn or 77% of FY15 presales contribution. We were unsurprised over the failure to deliver its FY15 presales target of Bt16bn. Condo revenue in FY15 is guided to be Bt15.5bn, slightly below LPN’s targeted Bt16bn. With Bt500m in low-rise sales, FY15 residential revenue would be Bt16bn, a rise of 30% YoY. Thanks to expense controls, FY15 EPS will to beat our old model by 4% at FY15 EPS of Bt1.78, up 30%.   

To post weak 4Q15 results but strong 2H15 DPS and 1H16 profits

LPN will post unexciting 4Q15 presales of Bt2.5bn (down 38% YoY and 18% QoQ) and core profit of Bt496m (down 31% YoY and 51% QoQ). Despite weak 4Q15 numbers, DPS for 2H15 is expected to be strong at Bt0.6, a 4.0% simple yield, XD in late Feb.  LPN plans condo revenue of Bt10bn in Jan-Apr 2016 before government stimulus packages expire on 28 Apr. Residential revenue for 1H16 will shoot up at least 40% YoY. 

Keep watching Lumpini Township Rangsit transfers 

The transfer of Lumpini Township Rangsit Phase 1 (Bt2.4bn of value with 70% booked, starting in Nov 2015) was below LPN’s target by half. Thus, we have to focus on the speed of Rangsit transfers (three phases valued at a total of Bt7bn). Our modeled assumes Bt4bn of Township Rangsit revenue in FY16, 24% of FY16 total revenue. 

FY16 plan—secured revenue but a thirst for launches in FY17

Opas unveiled LPN’s FY16 business plan: launches of Bt17.6bn, presales target of Bt17.6bn (up 21%), and a condo revenue target of Bt17.6bn (up 10%). It has high earnings visibility for FY16, as presales backlog at FY15 of Bt12bn secures 68% of LPN’s target and our forecast. Launches in FY16 are of a small project size of Bt1bn-2bn to limit risk. Given sustainable revenue growth of 10% for FY17, we view that LPN needs to open at least seven condos (total value of Bt12bn-14bn), to transfer in FY17—the first launch of FY16 will be at Bangwak on 30 Jan.