Land & Houses

Land & Houses Plc (LH)

What’s new? We attended LH’s analyst meeting yesterday. The key discussions centered around the FY12 business plan. Management also gave details of planned asset sales to a property fund and its bid for a land plot at Samyan in central Bangkok. We have summarized the highlights below:
1) 4Q11 profit boost from gain on sale of assets in Indonesia & tax shield: Not only will LH book a Bt347m net gain from its sale of assets in Indonesia in 4Q11, but it will book Bt1.9bn in accrued losses from the failed venture as a Bt570m tax shield for the quarter, making for a very low effective tax rate.   
2) FY12 business plan: This year, the firm aims for 15% presales expansion to Bt22bn (76% low-rise, 24% condo) and 8% growth in housing revenue (79% low-rise, 21% condo). Bookings will be driven by a bigger launch schedule, up by 34% in total value to Bt33bn (65% low-rise, 35% condo)—16 new projects in total. Rental income is expected to jump 150% YoY to Bt1.7bn with a full operational year for Terminal 21 (retail and serviced apartments). LH guided that housing GM will dip 1% in FY12, due to higher costs (the firm won’t be able to fully pass through increased costs to homebuyers).
3) Rental assets to property fund: Management said three rental properties will be sold to a property fund in 1H12—two serviced apartment buildings (Centerpoint Thonglor and Phompong) and a rental housing estate (L&H Ville Sathorn). The sale of Centerpoint Wireless to a property fund has been postponed because of regulatory problems. The fund size will be about Bt3bn (down from an originally planned Bt5bn).
4) Bidding for leasehold plot at Samyan: LH is bidding for the lease of a piece of land owned by Chulalongkorn University near the Samyan MRT station. The winner is expected to be announced soon. If LH were to get the plot, it would build a mixed-use retail and serviced apartment complex. Management estimated the IRR of the project at 12%.
Comment: Thanks to the tax shield carried forward from the failed Indonesian investment (Bt570m from Bt1.9bn in accrued losses), we have revised up our core profit forecast for FY11 by 17% to Bt3.9bn. Thus, LH will post the best 4Q11 earnings in the sector—YoY and QoQ growth versus YoY and QoQ declines among most of the competition.
Management’s revenue guidance for FY12 is the most conservative in the sector—8% growth versus double-digit expansion for comparable peers. LH expects only subdued housing sales recoveries among projects hit by the flooding last year, but its number is still higher than our model of 6% (which we will review).
The firm’s FY12 presales growth target of 15% is realistic, given its hefty condo launch schedule for this year—seven new condos with a total value of Bt11bn—Sukhumvit Soi 40, Sathorn Ratchapruk, Chiangmai, Soi Ari, BTS Wongwienyai, and Sathorn (LH didn’t launch any condo in FY11). Note that the current presales backlog (Bt3.9bn available to transfer in FY12) secures 22% of our FY12 revenue forecast.
With regard to the planned asset sales to a property fund, we expect a fund size of Bt3.4bn. Assuming no LH stake in it, the net gain would add about Bt563m (Bt0.06/share), or 15% upside, to our FY12 net earnings projection.
Action: The asset monetization plan will be a major theme during 1H12. The transactions are expected to boost LH’s bottom-line growth far ahead of its peers. In the short-term, the firm will post a 4Q11 earnings outperformance and is likely to win the lease for the land at Samyan. We maintain our BUY rating. We will revisit a YE12 target price to factor in our new earnings projections. The stock trades near its mean FY05-11 PER of 16.4x, but it would be a 15% discount to its average with estimated gains from asset sales included.