LPN Development

LPN Development Plc (LPN)

LPN achieved disappointing presales of THB1.8bn (vs. its target of THB4bn) on its WIP inventory of six projects eligible for a special promotion during its four-day “Big Shock” sales event. We stay cautious despite the robust 1H12 presales of THB11bn. Our EPS estimates are unchanged despite 102% backlog-secured FY12 sales. Last year, LPN’s 105%-secured FY11 sales as at 2Q11 did not result in additional income. With stretched valuation and limited upside catalysts we retain Neutral and 8.5x CY13 P/E-based target price (+1SD above 6-year average and premium for its strong condo market presence). Switch to PS or SIRI. 
What Happened
LPN posted THB5bn in presales from its “Big Shock” event on 21-24 June, of which THB3.2bn was for three new projects, and THB1.8bn for work-inprogress inventory for six projects pending transfer in 2H12. 1H12 pre-sales was THB11bn, 10% above LPN’s original target and 69% of its FY12 target.
What We Think
While 1H12’s total presales positively,we are concerned that LPN’s inventory presales was 55% below its THB4bn target. The disappointing outcome made us question what went wrong at “Big Shock”, especially with LPN’s aggressive “pay only THB5,000 for monthly mortgage for the first 55 months” campaign for the six inventory projects. We think possible reasons are: (1) intensifying competition in the low-end condo market, (2) mispricing (LPN’s almost 20% price hike on inventory may have deterred buyers) resulting in customers hesitating to pay a premium for LPN’s products, and (3) more demanding customers given the supply of better products at reasonable prices from competing developers. The record-high 1H12 presale was impressive, but the low FY13 backlog at 43% of FY13 sales remains a concern. As at 2Q11, the FY12 backlog was 63% of target FY12 sales and at end-FY11, it was 79%. LPN must accelerate the pace of its presales and backlog to raise FY13-14 revenue visibility; otherwise downside risks for earnings visibility are imminent, in our view.
What You Should Do
While we see long-term value in LPN, its valuations appear to have priced in good 4Q12 results and its ambitious FY12 presales target. We prefer PS and SIRI for their more promising upsides.