LPN Development

LPN Development Plc

Investment thesis
Among Residential Developer stocks, we prefer LPN because we anticipate that its launches in October onward will generate presales that secure revenue in FY14-15. The current backlog fully secures our FY13 top-line forecast. Presales this year look set to beat LPN’s guidance by 15-20% We have rolled over our investment horizon to YE14 and arrived at a new target price of Bt26 (our YE13 target was Bt23), pegged to a PER of 12x (2SDs above LPN’s FY06-12 mean).
Lumpini Township Rangsit Klong 1—the biggest project ever
We visited Lumpini Township Rangsit yesterday. The project will comprise 94 rai, 50 buildings (eight floors per building), 10,154 units, a mean sales price of Bt0.7m/unit and a total value of Bt7bn. The first phase of 4,800 units will launch on Oct 12 with a sales price of Bt639k/ unit (Bt30k/sq.m). Revenue recognition will start in late 2014. LPN targets fully booking the first tranche of units in October, due to the cheap price and good location (1.5km from Future Park Rangsit—the biggest shopping mall in northern Bangkok). The Rangsit project will include a mall to be managed by SF Plc.
What are the implications of the Rangsit project launch?
The GM of the project should be higher than the minimum requirement for the Condotown brand (normally 26-27%), as the project value is 11% above the earlier guidance and the land cost is low (<10% of project value). The additional presales from Rangsit will increase FY14 revenue visibility. Assuming a 70% take-up rate on Oct 12, the project would add presales of Bt2.1bn, boosting the secured proportion of our FY14 revenue forecast from 42% to 54% (up to 60% if the launched units were fully booked).
LPN will launch new two or three small projects in 4Q13 (valued at ~Bt1bn/building) that are to transfer next year, which would cover our FY14 revenue forecast (Bt17.5bn, up 15% YoY). Note that management reaffirmed recently that it had six land plots on-hand.
Unattractive 3Q13 numbers, but strong 4Q13 bottom-line
The poor 3Q13 numbers are behind us. We expect a QoQ contraction in presales for the quarter (flattish YoY), due to only a small launch schedule—Bangna C Building. The launches of two projects—Rangsit and Sukhumvit 24—were delayed from Sept to Oct. Revenue of Bt3.5bn is expected for 3Q13, up modestly YoY but down QoQ. LPN will resume strong YoY and QoQ presales growth in 4Q13. Furthermore, condo revenue for that quarter will jump by 60% QoQ to Bt5.7bn  (four projects are to transfer), though that would constitute a YoY decline from the high base comparison set by record 4Q12 condo income of Bt6.8bn.