LPN Development

LPN Development Plc (LPN)

Investment thesis: Not only was LPN’s earnings profile squeezed only modestly by the flooding, but the firm will post QoQ presales growth in 4Q11 (beating the sector), supported by three condo launches this weekend. We maintain our FY12 profit forecast of Bt2.1bn, a new record high—revenue visibility is clear. We have upgraded our YE12 target price to Bt14.40 (from Bt11.20), as we have re-rating our target PER to 10x from 7.7x to factor an expanded earnings profile, boosted by upcoming presales. Note that LPN entails the least earnings downside risk in the sector and there is likely to be scope for upside to our FY13 forecast. 
Three condo launches; greater sales visibility: This weekend, LPN will be the first of the top-five developers to launch post-flooding condo projects—Bt3bn in total. We expect moderate responses. Conservatively, we assume 50% take-up rates for the three projects, making for additional presales of Bt1.5bn, an 11% backlog expansion to Bt14.6bn (revenue recognition in 4Q12 onward). We estimate that the new presales will bring secured revenue to 82% of our FY12 forecast (from 77%) and 22% of our FY13 number (from 17%).
Three low-end condo projects will open for presales on Dec 17: 1) Lumpini Mega City Bangna (launch value of Bt1.5bn of a planned total value of Bt2.8bn), which encompasses two brands—CondoTown (mean price of Bt39K/sq.m) and Ville (Bt45K/sq.m), 2) Lumpini CondoTown Ladprakao (Bt1bn; Bt39K/sq.m) and 3) Lumpini Naklua-Wongamart I (launch value of Bt700m of a planned total value of Bt2bn).  
Sustainable strong yield: We anticipate a final DPS of Bt0.44 for 2H11 operations, implying a 7% annualized yield (XD in March; payment in May 2012). We also expect a record DPS of Bt0.78 for FY12 (divided into two payouts a year), a 6.2% yield, which ranks third-highest in the sector (after SC and SIRI).
The sector’s healthiest balance sheet: LPN’s balance sheet is best of the Residential Developers we cover—a net cash position at end-Sept 2011 versus a 1.1x mean gearing ratio for the sector. Despite flooding in 4Q11, LPN should post a low net gearing ratio of 0.1x at YE11 (while delays to unit transference will push up leverage among other developers). The healthy balance sheet will support new launches to guarantee FY13 earnings.