LPN Development

LPN Development Plc (LPN)

We expect a 2Q12 net profit of THB148m (-74% yoy and -50% qoq) vs. THB183m consensus. 1H12 will form 20% of our FY12 estimate.
Despite a strong backlog securing 98% of FY12 sales, we maintain a Neutral stance given stretched valuations and the relatively low FY13 backlog.
Our EPS estimates are unchanged as we expect a stronger 2H12. We also keep our 8.5x CY13 P/E-based target price (1.5SD above 5-year average
of 7.2x; premium for condo market dominance) unchanged. While some investors may like the stock for its 4% yield and clean balance sheet,
we would prefer switching to PS or SIRI for greater upside. 

What Happened
We expect LPN to report a weak 2Q12 net profit of THB148m (-74% yoy and -50% qoq) given limited new condo transfers (only Nida Seri Thai
phase 2), resulting in a sharp fall in sales (-71% yoy, -49% qoq). But thanks to the 20% price hike on finished inventory at LPN’s Big Shock event,
inventory sales (62% of 2Q12 sales) pushed gross margin up to 32% in 2Q12 (vs. 29% in 1Q12), but still lower than 2Q11’s 33%.1H12’s net profit
will likely form just 20% of our below-consensus FY12 estimate.

What We Think
We expect a strong 2H12, with 4Q12 to show the best performance given four new condos to transfer (vs. two in 3Q12). 2H12 gross margins are
expected to be higher than 1H12’s average of 30.5% on better-margin transfers. Despite 1H12’s buoyant THB11bn presales (69% of LPN’s
FY12 target) and solid FY12 backlog (98% of FY12 THB13.2bn target), we stay cautious on FY13 sales outlook as the backlog is only 53% of our
FY13 condo sales forecast of THB14.5bn (+9.8% yoy). We expect additional TH sales of THB956m in FY13. LPN needs to boost its FY13
presales to build up its backlog and keep sales growth above 10%. But this could be difficult as competition intensifies in the lower-end market
that is facing structural change (lower-end condos now make up more than half of the total condo market’s new supply). Competition
in the rural market is also rising.

What You Should Do
We prefer promising outperformers with upside potential and cheaper valuation like PS and SIRI. We keep LPN at Neutral for its almost
debt-free balance sheet and dominant market position in the condo market.