Land & Houses

Land & Houses Plc (LH)

Investment thesis
Our TRADING BUY rating stands with a downsized YE14 target price of Bt9.80 (down from Bt11), which reflects diminished expectations. LH trades at 0.5SD below its FY06-13 mean. The share price will bounce when the political chaos eases—LH’s client base is dominated by high income demographics. The firm also has hidden investment value; it would realize big gains if it were to divest investments and/or assets.
Conservative plan for FY14
Assuming that the political chaos eases by mid-year, LH plans an FY14 launch schedule of Bt35bn (64% low-rise and 34% condo; 80% in Bangkok and 20% upcountry), down 10% YoY. The firm plans low-rise launch value expansion of 22% YoY to Bt23bn. Conversely, condo launch value is slated to dive 40% YoY to Bt12bn. The FY14 presales target is Bt32bn, up 6%, to be driven by 11% YoY low-rise growth (condo presales are forecast to dip 3%). Management conservatively guides for a 40% mean take-up rate for the five condos it intends to launch this year. The FY14 revenue target is flat YoY at Bt25bn (82% low-rise, 18% condo).
Earnings projection cuts
We have cut our core profit estimates by 2% for FY13 and by 10% for FY14 to fine-tune for the subdued business plan. We have pared back our residential revenue assumptions by 2% for FY13 (to Bt24.5bn) and 12% for FY14 (to Bt25.0bn). The YE13 presales backlog of Bt15bn secures 30% of our FY14 revenue forecast and 14% of FY15. We conservatively assume residential GM of 34.9% for FY14; down 40 bps YoY and below the firm’s target of maintaining the number flat YoY.
Management targets maintaining residential margins
LH is vehement that it will not cut sales prices, despite the weak GDP outlook. FY14 residential GM is targeted to be sustained YoY. TH and condo GM should fatten YoY from the low bases set by FY13 (31% for TH and 28% for condo—fire sale prices to clear inventory at The Landmark (TH) and super-slim GM for The Room Suknumvit 40 condo. The SG&A/ sales ratio should stable YoY, assuming flat revenue.
Good recurring income outlook
Rental property income (9% of FY14 revenue) is expected to rise 14% to Bt2.5bn in FY14, boosted by two rental assets that were bought in the US in 2013. US rental income will jump from Bt79m in FY13 to Bt280m in FY14. LH has secured land at Soi Thonglor to build a serviced apartment building (construction in FY14-17)—not factored into our model. It has also set a Bt2bn budget to acquire land for a new rental property (retail and/or hotel). The SEC has approved the divestment of Terminal 21 to a newly-established property fund, but LH will wait for good timing to sell. It might also sell three serviced apartment buildings (Centre Point Thonglor, Ratchadamri and Asoke) to an REIT in the future.