Land & Houses

Land And Houses Plc (LN)

We are more positive on LH’s outlook given its improving core housing development business and better-than-expected profitability of its shopping complex. Its reduced reliance on non-core affiliates points to better earnings quality, reinforcing it as our preferred property stock. Taking our cue from the 2Q briefing guidance, we raise our EPS forecasts and target price, which is now based on 17x CY13 P/E (still 1SD above 15x historical average) vs. 16x previously given its improving core earnings. LH deserves a premium valuation as it is Thailand’s 3rd largest developer and the only large-cap property stock. Reiterate Outperform.

Positive guidance
LH reiterated its FY12 targets of THB22bn presales (+15% yoy; 1H12 was 51% of FY12 target) and THB21bn sales (+13% yoy; 1H12 was 46% of FY12 target). It expects full-year gross margin to be no less than 1H12’s 32.6% given the higher gross margins of up to 34.2% for semi-detached houses (SDH) in 2Q12, thanks to demand recovery and the introduction of new products.
It ended 2Q12 with a backlog of THB6.5bn, of which THB4bn (54% SDH/TH) will be transferred in 2H12. LH plans to enhance rural sales contribution from less than 5% now to 10-15% over the next few years. Another area of focus is retail property development aimed at strengthening recurring income and reducing its reliance on income from associates.

EPS upgrade Our EPS upgrade mainly reflects our assumptions of (1) higher sales, (2) higher rental income, (3) better rental gross margins, (4) more income from associates, and (5) a
lower FY12 effective tax rate. Without FY11’s one-off gain of THB2.1bn from the sale of KH, we
expect EPS to fall 10% in FY12 but core EPS to improve 12%. Thanks to its successful rebranding to enhance topline and margins, FY13-14 core EPS should rise by 4-21%.

Justified premium
We continue to like LH for its determined efforts to rebuild its SDH/TH market, concrete strategies
for stronger recurring business and upcountry expansion.