LPN Development

LPN Development Plc (LPN) 

Investment thesis

Last year was not one of LPN’s best—core profit is estimated to have slid 13%. But the FY15 earnings growth profile is 38% with the clearest visibility in the sector. LPN’s recent 10% stock price fall fully prices in expected weak FY14 numbers. Our YE15 target price is Bt27 (cut from Bt30 to factor in our forecast cut), pegged to an unchanged PER of 14x (2SDs above its FY06-13 mean). BUY!

FY14 performance will fall short of targets

FY14 launches were cut 30% from initial guidance to Bt14.5bn (four projects were postponed from 4Q14 to 2015—the re-launch of Township Rangsit Klong 1, two condos in Cha-am and one condo in Hua Hin).  Thus, LPN will post FY14 presales of Bt17bn, 15% below its target of Bt20bn. FY14 condo revenue will miss its target by 12% to Bt12bn, due to cancellations among speculators that reserved units in Lumpini Park Udon-Posi (launched in 2Q13; started transferring in 4Q14). 

Despite the FY14 presales and revenue target slippage, LPN will lead presales and profit growth of our coverage in 4Q14—presales of Bt4bn (up 38% QoQ against a QoQ decline for our coverage) and residential revenue of Bt4.5bn, up by 12% YoY and 31% QoQ. 

Earnings forecast cuts

We have revised down our core profit projections by 4% for FY14 and 11% for FY15 to reflect diminished expectations for revenues. Our residential income forecasts decline by 4% to Bt12.6bn for FY14 and by 10% to Bt16.7bn for FY15. We assume that only Bt2bn (of Bt7bn) of Township Rangsit Klong 1 will transfer in FY15 and only 50% of three sizeable projects (at Rattanathibet, Srinakarin-Huamark and Rama IX) will transfer in FY15. Lumpini 24 will start transferring in FY16.   

Clear FY15 revenue visibility; strong growth

LPN has Bt15bn in presales scheduled to transfer in FY15, which secures 90% of our FY15 residential revenue forecast and ranks the best of our coverage. Despite our earnings forecast cuts, LPN will deliver 38% profit expansion for FY15 (against 16% mean growth for our coverage), led by 31% top-line growth. We model that residential GM will fatten 0.2% YoY to 32.2% in FY15. There is scope for upside to our GM forecast from a changed product mix (high-end brands will transfer in FY15). 

FY15 quarterly earnings outlook is smoother

Six condos are to start transferring in FY15 (one condo in 1Q15, two in 2Q15, another two in 3Q15 and one in 4Q15—see Figure 6). Note that only one small condo transferred in 1Q14, none in 2Q14 and three condos in both 3Q14 and 4Q14. Thus, LPN should achieve YoY profit growth for each quarter through FY15.