LPN Development

LPN Development Plc (LPN)

Investment thesis: At the analyst meeting, the MD, Opas Sripayak, reaffirmed clear earnings visibility for FY12. He unveiled an ex-Bangkok diversification strategy for FY12 (45% of new project launches will be in the provinces). There is scope for GM upside from LPN’s guidance of 30% (30.8% in our model). We prefer the stock over the medium-term. Its premium valuation is deserved, as it has the clearest earnings visibility in the sector. LPN trades at an FY12 PER of 9.8x, above its 7.8x FY05-11 mean. Our YE12 target price is pegged to an 11x PER.
Earnings concentrated in 2H12 (record in 4Q12): Ten LPN projects will complete construction this year (total value of Bt14.9bn); eight are scheduled to transfer in 2H12. Thus, 2H12 revenue will comprise 70% of the FY12 top-line (Bt3bn in 1H12; Bt10bn in 2H12). In 1H12, lower tax expenses (headline corporate tax cut to 23%) will mitigate the effect of a YoY decline in sales of about 50%. Then 2H12 earnings are expected to post an 80% YoY jump. We model for a record profit in 4Q12.
82% of FY12 revenue is secured: The presales backlog of Bt13.8b at YE11 secured 76% of our FY12 revenue forecast, a number that increased to 82% with the launches of THs and Lumpini Ville Sukhumvit 109-Barring (around a 40% take-up rate). Presales have a minimum GM of 30%. Presales at Mega City Bangna Phase II (launched last weekend) will transfer in FY13.
Best presales of the year expected in 2Q12: LPN has 11 land plots for projects valued at Bt22bn in total. The firm plans to launch Bt16bn worth of developments in FY12 (phase by phase launches for Lumpini Park Ratanathibet and Lumpini Condotown Chonburi—both land plots are big)—Figure 2. We expect LPN to post the best presales of the year in 2Q12 (five projects are to launch during the quarter).
Diversification of products and places in FY12: The firm launched a TH brand, “Pornsanti” and its first TH project at Sena (40 units booked of 70); it will start another TH project in the Ladprao area in March. LPN also launched a low-end condo priced of Bt0.5m/unit at Condotown Chonburi and has diversified into the provinces with new developments in Cha-am and Hua Hin. Five projects of 11 to launch this year are in the provinces (including three condos in Chonburi).