LPN Development

LPN Development Plc (LPN)
Below our estimate
LPN posted a net profit of Bt614m for 3Q13, up 14% YoY but down 23% QoQ. The result was 11% below our estimate and 7% shy of the consensus, due to disappointing condo revenue.
Results highlights
Condo revenue for the quarter totaled Bt3.5bn, up 11% YoY but down 20% QoQ. LPN transferred the remaining units at Lumpini Park Beach Jomtien (39% of 3Q13 condo revenue), Lumpini Mega Bangna (27% of condo revenue), and started recognizing Lumpini Ville Naklua-Wong Amat (10% of 3Q13 condo revenue).  Condo GM dipped by 0.5% YoY and 0.3% QoQ to 34.3%, due to a changed product mix. The SG&A/sales ratio dropped from 12.5% in 3Q12 to 11.8% in 3Q13 on top-line expansion. The net gearing ratio rose from 0.34x at end-June to 0.40x at end-Sept, due to the QoQ top-line contraction.
Outlook
Management has cut its FY13 condo revenue guidance 7% to Bt14bn, mainly because the transference starting dates for two condos (Lumpini Naklua-Wong Amat and Condotown Chonburi-Sukhumvit) were pushed back two months (LPN claims that a lengthy EIA approval period was to blame). Hence, Bt2bn in revenue recognition was postponed from 4Q13 to 1Q14. Despite the lower guidance, FY13 condo income will still increase 10% YoY and the firm targets 15% top-line growth for FY14. 
4Q13 profit will jump QoQ on higher condo revenue (up 29% QoQ to Bt4.3bn). Three condos will start transferring during the quarter—Sukhumvit 77, Condotown Chonburi and Ramkhamhaeng 60/2. But earnings will slip in YoY terms from the record set for 4Q12.
What’s changed?
We have trimmed our profit forecasts by 6% to Bt2.5bn for FY13 and by 6% to Bt3.0bn for FY14 to fine-tune for the weaker FY13 management guidance. 9M13 earnings represent 70% of our new FY13 model (64% of the street number). The presales backlog fully secures our FY13 condo revenue forecast, 59% of FY14 and 44% of FY15.  FY14 revenue visibility will increase, as LPN will launch four projects (worth Bt6bn in total) in 1Q14 with sales to be recognized in 4Q14.
Recommendation
The transference delays may negatively impact on the share price in the short-term. We anticipate a price correction of 6% at most, which would present an opportunity to BUY. The delayed revenue boosts FY14 top-line visibility. Our BUY rating stands, with a slightly lower YE14 target price of Bt25 (previously Bt26), still pegged to a PER of 12x (2SDs above LPN’s FY06-12 mean). The next catalyst would be the successful launch of Lumpini Sukhuvmit 24 on Nov 24, which could push presales for the year up to Bt23-24bn (significantly above the firm’s target of Bt20bn).