LPN Development

LPN Development Plc (LPN)

In line with our estimate

LPN posted a net profit of Bt360m for 1Q13, up 22% YoY but down 71% QoQ (following record 4Q12 earnings). The result was line with our estimate but 9% below the consensus (margin was slimmer than the street assumed).
Results highlights
The YoY growth was driven by 14% condo revenue expansion (to Bt2.4bn) and fatter GM (from 29.1% in 1Q12 to 33.3% in 1Q13). During the quarter, LPN started transferring Lumpini Ville Sukhumvit 109-Barring (Bt461m; 49% transferred) and recognized remaining sales at four condos that completed construction in 4Q12. The SG&A/sales ratio jumped from 18.9% in 1Q12 to 23.5% in 1Q13, due to higher marketing expenses—four condos launched in 1Q13 versus only two in 1Q12. LPN’s effective tax rate dipped from 22% in 1Q12 to 20% in 1Q13. The net gearing ratio rose from 0.20x at YE12 to 0.38x at end-March, due to heavier construction spend on projects that will transfer in 2Q-3Q13.
Outlook
2Q13 profit will resume both YoY and QoQ growth (2Q12 was the weakest earnings quarter of FY12). Revenue in 2Q13 is forecast in the range of Bt3-4bn versus only Bt1bn in 1Q12. A sizeable condo, Lumpini Park Beach Jomtien Pattaya (Bt4.2bn; 80% booked), will start transferring in June.
LPN will report its best profit of the year in 3Q13. We expect Bt5.5bn in condo revenue (up 83% YoY), led by remaining units at Jomtien Pattaya and the start of transference of Mega Bangna (Bt3.2bn; 73% booked).
What’s changed?
Our model stands unchanged. 1Q13 will be the weakest quarter of the year (15% of our FY13 profit forecast and 13% of the street’s). The presales backlog at end-March of Bt20bn secures 90% of our FY13 revenue projection and 48% of FY14. The other 10% of FY13 income will come from Mega Bangna C-Building (Bt1.2bn) after construction completion in Sept—C-Building was NOT presold along with the other four buildings in the huge project.
Recommendation
tionWe prefer LPN for its defensive earnings features. In 2Q13, it will launch three condo projects together worth of Bt6bn. Assuming a 70% mean take-up rate, the additional presales would increase secured FY14 revenue to 72% of our forecast by end-June. The key stock price catalysts are anticipation of record 3Q13 presales from the heaviest launch quarter of the year (at least three projects worth Bt7.2bn in total). LPN looks set to beat its FY13 presales target of Bt20bn by 10%, in our view. Our BUY rating stands with an unchanged YE13 target price of Bt27.50 pegged to a PER of 15.0x. The stock trades at an FY13 PER of 13.3x, far below its high in March of 14.9x.