Land and Houses

Land and Houses Plc (LH) 

Below estimate

LH reported a record net profit of Bt3.3bn for 4Q14, up by 110% YoY and 90% QoQ. Excluding a Bt1.5bn (net of tax) gain from selling Terminal 21 mall to a REIT, core profit would be Bt1.8bn, up by 11% YoY and 3% QoQ.  The core profit was 7% below our estimate and 8% lower than the consensus because of slim core margin. The firm announced a better-than-expected final DPS of Bt0.40, a 3.8% simple yield (our assumption was Bt0.35; the consensus was only Bt0.26)—a 90% payout rate for FY14 against only 62% for FY13 (XD on April 29; payment on May 22). 

Results highlights 

Core earnings growth was driven residential sales—up by 28% YoY and 25% QoQ to Bt7.4bn. Low-rise sales were strong and two condos started transferring during the quarter—The Room BTS Wongwienyai and Wan-Way-La-Kao-Tao. Disappointing us and the market, residential GM dipped by 3.2% YoY and 2.9% QoQ to 33.4% in 4Q14 (the lowest quarterly GM of FY14).The SG&A/sales ratio increased from 14.7% in 4Q13 and 14.4% in 3Q14 to 16.9% in 4Q14, due to an Bt84m in provisions for a court case and bonus expenses. Profit-sharing from affiliates rose 1% YoY but dipped 3% QoQ. Net gearing was only 0.7x at YE14 (the lowest since YE10).   

Outlook 

Core profit is expected to rise YoY but decline QoQ in 1Q15. Low-rise sales will expand YoY and QoQ. The remaining units of two sizable condos—The Room BTS Wongwienyai and Wan-Way-La-Kao-Tao—will transfer in 1Q15. Besides, Ease Rama II condo (Bt780m; 80% booked) is scheduled to start transferring in 1Q15.  

What’s changed? 

We forecast 12% core earnings growth for LH for FY15, below the 16% expansion that we expect for our coverage as a whole. The key challenges are recruiting new SDH bookings and clearing unsold condo units (presales secure only 14% of our FY15 residential revenue forecast). The value of condos due for completion in FY15 of Bt6.2bn is 8% lower than the FY14 number and concentrated in 4Q15 (85% of total value completion). There might be limited scope for earnings upside if LH were to acquire an apartment building in the US (Bt2.5bn).

Recommendation 

Despite an expected presales recovery in 1Q15, LH’s FY15 core earnings growth profile lags the sector. The stock is up 16% YTD, which presents an opportunity to take profits. LH trades at an FY15 PER of 16.2x, above its 15.3x of its FY06-14 mean. We have downgraded our rating from BUY to HOLD. Gains from asset sales are unlikely within the medium-term. LH owns two serviced apartment buildings in California (bought in 2013) and three serviced apartment buildings in Bangkok (at Terminal 21, Ratchadamri Road and Ploenchit Road) that it might potentially sell to a REIT. Our new YE15 SOTP-derived target price is Bt11 (up from Bt10.6 to fine-tune for investment value of Bt3/share). Our housing PER peg is 20x.