Land & Houses

Land & Houses Plc
Investment thesis
We prefer LH because we expect it to outperform its peers during the economic slowdown and for its scope for earnings upside from asset monetization and a new rental income projects. Our YE13 target price is now Bt11.20 (upgraded from Bt11 to factor in profits from a recently acquired asset in the US), pegged to an SOTP valuation—a target housing PER of 15.5x (its FY06-12 mean) and investment value of Bt3.90/share.
Earnings forecast upgrade on acquisition of a new rental asset
On Sept 5, LH bought a 264-unit apartment building in Oakland, California, for Bt3.3bn. The project IRR is 13-14% with 5% minimum annual yield. The building operates at a mean occupancy rate of 96%. We added 0.4% to our FY13 core earnings forecast and 1.5% to our FY14 projection to factor in the income from the building.
To post new records for presales and core profit in 3Q13
LH will report record high presales of Bt9.2bn for 3Q13 (62% low-rise, the rest of condos), up by 23% YoY and 20% QoQ. Based on the guidance, we expect bookings growth of 8% YoY and 15% QoQ for low-rise and 60% YoY and 30% QoQ for condos. We assume condo presales of Bt3.5bn, a new record, driven by the launches of four big projects (Bt7.7bn in total). FY13 bookings may beat LH’s target by 7%. Its business will remain strong in the face of a slowing economy, we believe, because its customer base is dominated by high income demographics, where affordability remains high (its mean sales price is Bt7.3m/unit—the highest of the ResDev stocks under our coverage).
We expect LH to follow its record 2Q13 core earnings with a new record for 3Q13. Our preliminary core profit forecast for 3Q13 is Bt1.7bn up by 16% YoY and 3% QoQ, driven by the top-line. Three condos will start transferring in during the quarter—The Room Sukhumvit 21 (Bt1.3bn), The Room Sukhumvit 40 (Bt600m) and North 8-Chiangmai (Bt400m). Profit should rise in YoY terms in 4Q13, when the firm plans to transfer another two condos (The Key Udomsuk and North 1-Chiangmai). 
Asset divestment to a new property fund in 4Q13
LH plans to sell Terminal 21 (retail space) to its newly-established property fund in Nov 2013. The other assets to be spun off to the property fund are Fashion Island (owned by the Assavabhokhin family) and Hua Hin Market Village (owned by HMPRO). The total fund size is expected to be Bt20bn.
These spin-offs aren’t yet in our model. We estimate the gain from the sale of Terminal 21 at Bt1.3bn (19% upside to our core earnings forecast for FY13) plus an accounting profit of Bt560m (9% upside to our FY13 core earnings forecast) from equity income tied to the boosts to the bottom-lines of HMPRO and QH from divesting Hua Hin Market Village. We conservatively assume no significant dividend upside from the asset sales, as LH is likely to reserve cash flows to invest in new rental projects.