Land and Houses

Land and Houses Plc (LH)

Above our estimate
LH posted a net profit of Bt1.4bn for 1Q13, down by 1% YoY and 11% QoQ. Excluding huge gains of Bt515m in 1Q12 (asset sales to the property fund), 1Q13 core profit jumped 48% YoY but fell 11% QoQ. The net result was 18% above our estimate, due to 10% better-than-expected residential sales and a lower-than-modeled effective tax rate of 15% (we had assumed 18%). 
Results highlights
YoY core earnings growth was driven by a 27% jump in residential sales to Bt5.3bn (led by low-rise sales). No new condo started transferring in 1Q13.  Residential GM jumped from 31.9% in 1Q1w to 34.5% in 1Q13, due to higher prices. The high revenue meant that the SG&A/sales ratio declined from 15.7% in 1Q12 to 13% in 1Q13. Profit-sharing from affiliates totaled Bt431m, up 16% YoY.
The QoQ core earnings decline was due to the high base set by the record 4Q12 result. 1Q13 revenue fell 14% QoQ. Residential GM dipped 0.5% QoQ. Also, profit-sharing from affiliates declined 14% QoQ. Net gearing was stable QoQ at 0.8x at end-March.
Outlook
We anticipate that LH will post YoY earnings growth for 2Q13, led by residential sales, a fatter GM and a lower effective tax rate. However, on a QoQ basis, core profit is expected to fall, due to high marketing expenses tied to the launch of a big high-end condo, The Bankok Sathorn (Bt7bn). LH will report strong YoY and QoQ growth in 3Q13 earnings, as three condos are slated to start transferring—The Room Sukhumvit 21, The Room Sukhumvit 40 and North 8 Chiangmai.
What’s changed?
1Q13 profit represents 22% of our full-year forecast (23% of the street projection). For the time being, we maintain our model unchanged—bottom-line growth of 22% YoY for FY13. We assume 12% housing revenue expansion to Bt25bn in FY13 (in line with LH’s target). Our housing GM assumption of 35.2% is more aggressive than LH’s guidance of 34.5%.
Recommendation
We maintain a BUY rating on LH with a YE13 target price of Bt14.20, pegged to a sum-of-the parts valuation—a target housing PER of 20x (1SD above its FY06-12 mean) and Bt5.2/share of investment value. LH trades at an FY13 PER of 20.4x. There may be scope for earnings upside from asset sales over the medium- to long-term (stakes in QCON and/or Terminal 21).