LPN Development

Investment thesis

LPN is our most preferred stock, premised on earnings growth leadership in FY15 with the clearest revenue visibility of our coverage. Unusually weak presales in 3Q14 are behind us. We are looking ahead to a bookings recovery in 4Q14 that will secure revenue in FY16. If Lumpini Condotown Rangsit wins EIA certification in Nov, there will be a surge in market interest in the stock. LPN trades at a cheap FY15 PER of 10.4x with a hefty core profit growth profile of 36% YoY. Our YE15 target price remains Bt30, pegged to a PER of 14x (2SDs above its FY06-13 mean). 

QoQ recovery ahead

LPN will report its weakest presales of the year for 3Q14 of Bt2.9bn, down by 7% YoY and 58% QoQ, due an absence of project launches during the quarter. But the firm is in no rush—it has a bookings backlog of Bt16bn to transfer in FY15. Project launches in 4Q14 will boost revenue visibility for FY16. LPN has seven condos (a combined value of Bt9.2bn) slated to launch in 4Q14 (details in Figure 5)—three projects (Bt4.5bn) in Nov and four (Bt4.7bn) in Dec. In order to achieve its FY14 presales target of Bt20bn, 4Q14 presales would be required of Bt6.9bn, up by 25% YoY and 140% QoQ, which looks comfortably achievable. 

Residential revenue is expected to post a rise of 2% YoY and 44% QoQ to Bt3.4bn for 3Q14, then peak for the year at Bt5.5bn in 4Q14 (up by 39% YoY and 63% QoQ). Core earnings are modeled at Bt605m for 3Q14 (down 2% YoY but up 65% QoQ) and Bt965m for 4Q14 (up by 77% YoY and 62% QoQ). 

FY15 earnings growth leader with the clearest top-line visibility

We anticipate record residential Income of Bt18bn in FY15, up 32% (the fastest growth of our coverage). Top-line expansion will drive earnings growth of 36%—the best of our coverage (we forecast mean ResDev coverage core profit growth of only 17%). Of our coverage, LPN has the clearest revenue visibility for FY15—our top-line forecast is 89% secured by presales (against a coverage mean of 44%). 

Product mix adjustments will fatten GM—upside to our model

We conservatively assume residential GM of 32.2% for FY14 against 32.4% actual GM for 1H14. In FY15, GM is expected to fatten 0.5% YoY to 32.7% (LPN guides for FY15 GM of 33-34%). The expected FY15 GM expansion is to be driven by an adjusted product (brand) mix (Figures 8-10). LPN will transfer seven condos in FY15; five of them will yield fat GMs of 32-34%. We anticipate super-fat GM for Lumpini 24 (a high-end project with a relatively low cost of land), which is slated to start transferring in 4Q15. If weighted mean GM were to exceed our assumption by 50 bps, there would be 3% upside to our FY15 profit forecast.