LPN Development

LPN Development Plc (LPN)
 

Below: LPN posted a net profit of Bt294m for 1Q12, down 27% YoY but up 373% QoQ. The number fell 22% short of our estimate and 10% below the street, due to disappointing revenue (8% below our estimate of Bt2.2bn) and GM (actual 29.1%; our estimate 32.5%).
Results highlights: Condo revenue was Bt2bn, down 15% YoY but up 132% QoQ. The key revenue contributors were Lumpini CondoTown Nida SeriThai and Ville Lazalle Bearing. Condo GM slimmed back to 29.1% from 32.5% in 1Q12 (it was unusually high at 36.0% in 4Q11, due to sales of high-GM inventory) because of a different product mix—the cheapest brands (CondoTown and Ville) were the main contributors to 1Q12 revenue. Net gearing remained low at 0.05x at end-March 2012. 
Outlook: LPN will post its weakest profit of the year in 2Q12 (a YoY and QoQ contraction), based on its backlog transference schedule. Only one small condo, CondoTown Nida Serithai II (Bt565m; 70% booked) will start transferring in 2Q12. Six projects (of nine condos to transfer in FY12) will contribute to 2H12 earnings.  GM will rise in 2H12 on the recogniti on of revenue from higher-end fat-GM branded condos—Park and Place.
What’s changed? 1Q12 profit accounts for 13% of our full-year forecast and the consensus. We maintain our earnings projections unchanged for the moment. Note that 78% of our FY12 revenue assumption is to be booked in 2H12. LPN will post a record profit for 4Q12.
Recommendation: Any share price slippage brought about by weak 1H12 results would present a good opportunity to BUY in anticipation of hefty top- and bottom-lines in 2H12 (presales secure 90% of our FY12 revenue assumption).
FY13 earnings visibility will increase significantly on presales for three condos with launches slated for 2Q12 (total project value of Bt6bn)—Lumpini Park Rattanathibet (Bt4bn), Ville Prachachuen (Bt1.3bn) and Srinakarin (Bt700m). 2Q12 presales will boost secured FY13 revenue from 46% of our forecast to above 70%.
LPN’s FY12 PER is 11.3, about 1SD above its FY05-11 mean of 10.3x.  Our BUY call stands with a YE12 target price of 19, pegged to a PER of 13x.