Land & Houses

Land & Houses Plc (LH)

Investment thesis
We recommend letting profits run on LH, even though its share price has jumped 18% YTD. The stock will gain further on a consensus earnings forecast upgrade, market anticipation of asset divestment and new recurring-income projects (in Thailand and the US). Once investors come to expect a record core performance for FY13, LH will be re-rated. It currently trades at an FY13 PER of 18.8x, a discount to the 20.9x it traded at in 2007.
All-time high - but achievable—targets set for FY13
FY12 presales beat the firm’s target by 14% (driven by low-rise bookings of Bt19bn, up 20% YoY) and we estimate Bt21bn in housing revenue for FY12, 5% above its target of Bt20bn. The firm’s FY13 presales objective is Bt30bn, up 20%—bookings for low-rise of Bt23bn (up 20%) and for condos of Bt7.5bn (up 60%). LH has an aggressive launch plan of Bt43bn (24 projects) for FY13, up 69%, including 10 condos worth Bt20bn in total (two of which, on Sathorn and Soi Ari, were delayed from last year). The firm targets record residential revenue for this year of Bt25bn, up 18%.
We believe the FY13 presales target is achievable, given a full recovery in low-rise demand this year (sales in areas that were flooded in 4Q11 recovered by 60-70% in FY12). In order to achieve the low-rise component of its bookings target for this year, LH would need only a 10% rise over its 2H12 performance. For its condo presales objective, it would only require only a 38% mean take-up rate from new projects. 
GM uptrend
LH is likely to post its best housing GM since FY04. We expect housing GM of 34.2% for FY12 (up 1.5% YoY, higher than the firm’s earlier target). Management guides that housing GM should rise at least 0.5% this year, due to favorable demand-supply dynamics for low-rise (industrywide low-rise launches plunged YoY), good cost control under the prebuilt model (costs fixed before sale) and cheap land costs (acquired more than a year before launch).
Clean balance sheet, despite aggressive launch schedule
The CFO expects a net D/E ratio of 0.8-0.9x at YE13, which would represent only a slight YoY increase (0.8x at YE12). The dividend payout ratio will remain high—at least 70%. There would be scope for DPS upside if LH were to divest assets to a property fund.
High hidden value
The firm has three recurring-income assets (Terminal 21, Centre Point Ratchadamri and Centre Point Wireless). We preliminarily estimate net gains of Bt0.10-0.20 to LH if were sell those assets to a property fund. There is also hidden investment value of at least Bt40bn in associated firms—LHBANK, HMPRO, Q-CON, QH and Starmall (formerly Polar).