LPN Development

LPN Development Plc (LPN)

Investment thesis
The successful launches last weekend will push up LPN’s share price (it has dropped 10% during the last two weeks). A short-term catalyst will be record presales for two straight quarters, 2Q-3Q13. LPN will also post YoY and QoQ profit growth for 2Q13 and its best quarter for the year in 3Q13. The firm has the clearest FY13-14 revenue visibility in the sector. Its PER will drop from 12.6x for FY13 to 10.6x for FY14.  We maintain our BUY rating with an unchanged YE13 target price of Bt27.50, pegged to a PER of 15.0x.
Two condos successfully launched, despite higher downpayments
LPN launched Lumpini Place Srinagarindra-Huamark Station (Bt3bn; mean sales price of Bt1.9m/unit) and Park Rama IX-Ratchada (Bt2.5bn; mean sales price of Bt1.6m/unit). The firm increased the downpayments for the two projects to 15% (previously 10%) in order to mitigate risk related to speculative bookings. Despite that, both projects were fully booked. The key selling points were brand recognition, locations and prices. Srinagarindra-Huamark is near the Airport Link’s Huamark station and there is a dearth of condo supply nearby. Rama IX-Ratchada is on Rama IX Road, a major artery.
The two launches made for Bt5.5bn in new presales, which pushed up secured FY14 revenue from 48% of our top-line forecast to 79% (90% of our FY13 forecast is secured). The Lumpini Place and Park brands normally yield GMs of about 32%.
Will post new presales records for 2Q13 and 3Q13
The firm will report record 2Q13 presales of Bt7.8bn (our previous estimate was Bt6.6bn), up by 27% YoY and 16% QoQ, led by three condo launches during the quarter worth Bt6.3bn in total. Looking forward, it is set to post a new presales record for 3Q13, driven by the heaviest quarter of launches of the year of Bt10bn—Sukhumvit 24, Rangsit, Bangna C building, and Hua Hin. We are fully confident in the achievability of LPN’s FY13 presales target of Bt20bn, as 75% of that target will be booked in 1H13. Furthermore, there is scope for 10-15% upside to the presales target, in our view.
Strong earnings flows in 2Q-3Q13
We forecast LPN’s quarterly revenue uptrend as follows—from Bt2.3bn in 1Q13 to Bt3bn in 2Q13 and Bt5.5bn in 3Q13 (the best revenue of the year). Earnings in 2Q-3Q13 will jump YoY and QoQ for both quarters, driven by the transference at Lumpini Park Beach Jomtien, Pattaya (Bt4.2bn; 80% booked) and Mega City Banga A, B, E and D buildings (Bt3.2bn; 73% booked). We think Lumpini Park Beach Jomtien’s GM may exceed our FY13 GM assumption of 32.2%.