LPN Development
Big promotions, June 21-24 BUY (maintained) Target Price: Bt19.00 Price (11/06/12): Bt16.40
LPN Development Plc (LPN)
What’s new? On June 21-24, LPN’s 23rd anniversary, the firm will launch generous promotions on existing unsold stocks of units worth a total of about Bt5bn (around 3,000 units) at six condos—Lumpini Rama III Riverside, Mega Bangna, Pattanakarn, Changwatta, Sukhumvit 109 and Ladprakao (construction completion in Sept). The company will subsidize mortgage payments for 55 months, pay the 1% transfer fee, the 1% mortgage fee, monthly sinking fund expenses and various utility charges and building management fees.
LPN expects the event to generate presales of Bt4bn, which it guides will be recognized as revenue in September and 4Q12.
Comment: The news was in line with management guidance during BLS Property Day (June 1). LPN told us that the effective total discount will be about 20%. The cost of the promotion will be equal to about 1% of FY12 revenue. Note that in May, LPN reset its unit base sales price 20% higher to cover anticipated future cost increases.
The management guidance of Bt4bn in presales from the promotion (June 21-24) pushes up our 2Q12 presales forecast from Bt4.2bn to Bt5.2bn, growth of 15% growth YoY and 6% QoQ (we would have expected some presales at the six properties even in the absence of the promotion). Furthermore, LPN will launch at least one project in June 24—Lumpini Park Rattanathibet—so 2Q12 presales could outrun our estimate. Note that the current presales backlog secures 90% of our FY12 revenue forecast.
Action: We are neutral on the news. We are more curious to see how three upcoming launches will be received—Lumpini Park Rattathibet and two other projects, Ville Prachachuen and Ville Srinakarin Bangna (they will secure FY13 revenue).
Our long-term BUY rating stands, but LPN doesn’t match with our low-rise home demand recovery theme. The stock isn’t cheap—an FY12 PER of 11.0x, above its 7.8x FY05-11 mean. It might be subject to a price correction on weak 2Q12 earnings (down YoY & QoQ) and a slow HoH presales outlook for 2H12 (Bt10bn in 1H12 versus Bt6bn in 2H12).
