LPN Development

LPN Development Plc (LPN)

Although LPN’s 9M12 condo presales make up 94% of its THB16bn full-year target, sale revenue forms merely 45% of our FY12 estimate. Downside risk for FY12 cannot be ruled out. FY13 visibility remains challenging given the relatively low backlog expansion pace. We keep EPS estimates unchanged, pending TH contributions and the one-off gain from divestment of Grand U. Our target price is higher as we roll forward our valuation to end-13 and apply a higher 9.5x P/E (8.5x previously), 1.5 SD above mean, to reflect strong condo presence and presales. But with limited upside, we maintain a Neutral rating. 
What Happened
LPN’s 9M12 presales was THB14.7bn, 94% of its FY12 target of THB16bn (condo only) but it still has no plans to raise the target. LPN has retained its FY13 condo sales revenue target of THB13.2bn (same as CIMB’s), while 9M12 condo revenue was guided at THB5.8bn (3Q12 sales
revenue was seen at THB2.7bn).Backlog was at THB20.1bn as at Sep 2012, of which THB7.4bn is pending transfer in 4Q12, THB8.7bn in FY13, and THB4bn in FY14.
What We Think
We are not impressed by the 9M12 presales. The numbers do not bode well for the future of LPN’s top position in market share for condos (SIRI’s 9M12 condo presales was THB15.1bn). While the market may like LPN’s divestment of Grand U to Univentures (UV), we are concerned
that this could add more competition in the low-to-mid condo market. UV could be a potential threat to LPN. Also, LPN’s FY13 condo backlog of THB8.7bn is relatively low (historical records suggest that the backlog should be at least 75-80% of next year’s sales target rather than the
60% currently), and much lower than SIRI’s THB15bn. It will be a challenge for LPN to transfer condos worth THB7.4bn in 4Q12 given that its highest ever in a quarter was only THB5bn in 3Q11. It is worth noting that LPN’s recently-guided 3Q12 transfers appear to be lower than its
previous guidance of THB3.0bn based on LPN’s transfer schedule as of Aug 2012. Thus, ownside risk does exist.
What You Should Do
While we see long-term value in LPN, its valuation appears to have priced in all the positive news flow. We prefer PS and SIRI for more promising upsides.