Land & Houses
The best 3Q12 core profit since 2004!
Land & Houses Plc (LH)
Positive surprise!
LH reported its best core profit since 2004—Bt1.5bn for 3Q12—up by 67% YoY and 34% QoQ. Core earnings were 28% above our estimate and 25% ahead of the consensus, mainly due to fatter-than-expected housing GM (we had assumed 33%; the actual number was 35.1%). A Bt347m marked-to-market loss on investments made for a net profit of Bt1.1bn, up by 25% YoY but down by 18% QoQ (in 2Q12, LH booked a Bt257m marked-to-market gain from investments).
The firm also announced a surprise interim DPS of Bt0.10 for July-Sept operations, implying a 4.5% annualized yield (XD on Nov 23; payment on Dec 12).
Results highlights
The impressive core earnings were driven by the best housing revenue since 2005, Bt6.3bn in 3Q12—up by 23% YoY and 25% QoQ (both low-rise and condo sales expansion). Low-rise comprised 78% of housing revenue; the rest was condo (Ocas, The Key Prachachuen and start of transference of The Key Changwattana). In another positive surprise, housing GM rose to 35.1%% from 32.6% in 3Q11 (33.3% in 2Q12), due to good cost control on low-rise projects and good condo GM. Revenue expansion meant that the SG&A/sales ratio fell by 0.2% YoY and 0.4% QoQ to 14.7% (despite a Bt134m legal provision for the Mantana project).
Profit-sharing from affiliates rose by 76% YoY and 45% QoQ, driven QH, HMPRO and QCON. Net gearing increased slightly from 0.82x at end-June to 0.93x at end-Sept.
Outlook
We anticipate strong YoY 4Q12 earnings growth, due to the low base set by the 4Q11 flooding. But we conservatively assume a QoQ drop following the excellent 3Q12 result. LH will transfer the rest of The Key Changwattana in 4Q12 (50% of the project’s value is available to transfer).
What’s changed?
We have revised up our core profit forecasts by 1% for FY12 and by 4% for FY13 to factor in the 3Q12 positive surprise and guidance for QTD sales. Furthermore, we have upgraded our FY13 housing sales assumption by 4% and GM by 0.7% to 33.4%. 9M12 net profit represents 75% of our FY12 forecast (78% of the consensus).
Recommendation
LH will gain from the positive news and a consensus forecast upgrade. The Interim dividend suggests forward earnings growth, solid cash flows and a healthy balance sheet. We have upped our YE13 target price to Bt10 from Bt9.20, based on a SOTP valuation—a target housing PER of 20x (up from 19x), 1 SD above its FY06-11 mean, and Bt2.49/share of investment value. LH currently trades at an FY13 PER of 15.6x. BUY!
