LPN Development

LPN Development Plc (LPN)

Investment thesis
On Nov 24, LPN launched The Lumpini 24, a Bt3.1bn high-end condo with a mean sales price of Bt165K/sq.m. Despite the massive anti-government rally on the same day, 90% of the units were booked. The market should react positively to the strong take-up rate. The sharp share price drop last week presents an opportunity to accumulate the stock. We maintain our BUY rating with a YE14 target price of Bt25, pegged to a PER of 12x.
Successful launch last weekend
The response beat management’s target of a 70% take-up rate.  The key selling point was the great location (Sukhumvit Soi 24). Note that the firm increased the size of the units, cut the number of dwellings in the building from an original plan of 500 units to 393 and increased the effective per-square meter sales price slightly (there is clearly strong demand at the high-end of the market). The Lumpini 24 will start transferring in late FY15. We roughly estimate that the launch made for Bt2.7bn in additional presales, pushing up secured FY15 revenue from 44% of our top-line forecast to 57%.
The project has a fat GM of at least 40%, as LPN bought the land plot in 2002, when real estate was much cheaper than it is now. The land cost comprises only 8% of the project value. LPN does not plan to build any more high-end condos like The Lumpini 24. Note that the development of the land plot was held up for 10 years by litigation till LPN prevailed in court last year. 
YTD presales set new record of Bt23.5bn
The additional presales from The Lumpini 24 pushed up LPN’s YTD presales to all-time high of Bt23.5bn. No launches are planned for Dec. For 4Q13, we estimate presales of Bt5.4bn, up by 35% YoY and 70% QoQ. That would bring FY13 bookings to Bt24bn, up 28% YoY and 20% above the company’s earlier guidance.
Five projects to launch in 1Q14
Although the business plan for FY14 is not yet concluded, management preliminarily guides for at least 10% growth in presales and revenue in FY14. Those targets should be comfortably achievable, despite the weak economy and the high base set by FY13 bookings. The presales backlog already secures 60% of our FY14 top-line target. LPN plans to launch five condos (the land plots have already been purchased) in 1Q14 worth about Bt10bn in total.  Three of the projects to launch in 1Q14 will transfer (revenue recognition) in 4Q14—low-rise buildings and locations near existing successful developments (LPN already has waiting lists of prospective customers).