Land & Houses

Land & Houses Plc (LH)
 

Above all expectations: LH reported a net profit of Bt1.9bn for 4Q11, up by 53% YoY and 112% QoQ. The net result was 14% above our estimate (and far above the consensus of Bt742m), due to higher-than-expected housing revenue. Excluding extra items (a Bt374m gain from the sale of Indonesian assets, a Bt70m marked-to-market gain on LHBANK and a Bt53m FX transaction gain), core profit would be Bt1.2bn (its best number since 4Q06), growth of 6% YoY and 34% QoQ.
Results highlights: The impressive 4Q11 earnings growth was led by a tax shield from LH’s divestment of its Indonesian assets (accrued losses from the failed venture)—a tax refund in 4Q11 versus an effective tax rates of 31% in 4Q10 and 25% in 3Q11. Despite the flooding, housing sales dipped only 1% YoY and rose 11% QoQ to Bt5.4bn, driven by condo transference (Ocas HuaHin, The Key Paholyothin and The Room Sathorn-Taksin).  Housing GM was flat QoQ at 32.5%. The SG&A/sales ratio increased by 5% YoY and 4% QoQ to 18.4%, due to flood protection expenses.
Equity income from affiliates dropped by 23% YoY, as there was no profit contribution from KH (LH sold its stake in KH in 1Q11) and QH’s earnings dived. Net gearing declined slightly to 0.9x at YE11.
Outlook: For 1Q12, we anticipate YoY core profit growth but a QoQ drop (high base set by 4Q11).
What’s changed? We have revised up our core profit forecasts by 5% for FY12-13 to factor in expanded expectations for future housing sales. Our housing revenue assumptions rise by 9% for FY12 and 8% for FY13.  
Recommendation: LH is a good play in the short-term on anticipation of gains from asset sales to its property fund, scope for dividend upside and the likelihood of the firm winning the bid for land at Samyan intersection. Management said the property fund is Bt3.3bn (in line with our assumption). We expect a net gain of Bt250-300m (Bt0.03/share). We have revised up our YE12 target price to Bt7.40 (from Bt7) to factor in our earnings forecast upgrades. Our sum-of-its-parts valuation comprises a housing PER of 16.4x (LH’s FY05-11 mean) and Bt2.85/share of investment value (a 10% discount to market value).