LPN Development

LPN Development Plc (LPN)

In line with our estimate: LPN posted a net profit of Bt147m for 2Q12, down by 75% YoY and 50% QoQ, in line with our estimate. However, the profit was 23% above the consensus model (Bt120m), due to better-than-expected condo GM.
The firm announced an interim DPS of Bt0.23 for 1H12 operations, implying a 2.8% annualized yield, in line with our estimate. XD on Aug 21; payment on Sept 4.
Results highlights: The YoY and QoQ profit contraction was mainly due to a condo revenue plunge to Bt1bn, down by 72% YoY and 51% QoQ—no new condos started transferring in 2Q12. The key revenue contributors were the remainder of Lumpini CondoTown Nida SeriThai and Ville Lazalle Bearing. Condo GM rose from 29.1% in 1Q12 to 32.7% in 2Q12 (but was slightly below 2Q11 GM of 33.1%), as the inventory carried good GM. The net gearing ratio jumped to 0.54x at end-June from 0.05x at end-March with a large backlog waiting to transfer in 2H12.
Outlook: 2Q12 will prove to be the weakest earnings quarter of the year. LPN will report a big QoQ jump in 3Q12 profit (but a YoY drop), driven by top-line expansion. Two condos will start transferring in 3Q12--Lumpini Ville Pattanakarn (Bt1.7bn; 65% booked) and Lumpini Park Riversisde Rama III (Bt5.4bn; 79% booked). GM will fatten QoQ in 3Q12 with the transference of Park Riverside (its upper-mid range brand). LPN will post record earnings for 4Q12, as four new condos will start transferring.   
What’s changed? The FY12 transference schedule and earnings profile are back-loaded. So, although 1H12 profit comprises only 20% of our full-year forecast (13% of the street’s), our model stands unchanged. The current backlog secures 95% of our FY12 revenue forecast (93% of the consensus number). 
Recommendation: In the short-term, LPN’s share price might dip, due to the weak 1H12 profit and stretched multiples (FY12 PER of 11.0x, 1SD above its FY05-11 mean of 10.3x). Any price decline would present an opportunity to accumulate ahead of strong 2H12 earnings. We suggest an entry price of Bt16. Three condo launches in Sept worth Bt5bn will boost FY13 earnings visibility. Our BUY call stands with a YE12 target price of Bt19, pegged to a target PER of 13x.