L.P.N. Development

L.P.N. Development Plc  

 

LPN’s 20% underperformance against the SET over the past three months is likely reflective of investor concerns about erosion of demand caused by high household debt plus cancellations. However, this reaction is an oversimplification. It overlooks the high take-up rate of over 70% for its recent launch of Lumpini ParkBeach Chaam, which suggests the level of household debt is not the determining factor in demand, and that the cancelations at Udon Thani and Pattaya were project-specific. With a good growth outlook this year and good visibility plus attractive TTR of 49%, we still BUY. 

Very profitable year ahead. We are confident LPN will achieve our profit forecast of Bt2.8bn this year, +37% YoY. This is backed by the high visibility provided by its backlog of Bt18.6bn as of end-2014, which secures a high 87% of our 2015 forecast – a backlog/revenue ratio that well exceeds its historical average of 82%. We also expect a widening in gross margin to 32.9% from 32.5% in 2014 backed by a change in product mix: a larger portion will be supplied by higher-margin Lumpini Place and Lumpini Park products compared to last year’s major contributors, the lower-margin Lumpini Ville and Lumpini Condotown. We note that meeting our forecast means consensus estimates would miss by 6%.  

Provinces not as quiet as believed. LPN experienced a good response to its recent launch of Lumpini ParkBeach Chaam, selling more than 70%. This raised 2M15 presales to Bt2.1bn, +11% YoY and 10% of this year’s full year target of Bt20bn (+17% YoY). The next launch is the Bt1.8bn Lumpini Ville Nakhon In-River View by end-March.   

More new launches, more presales. LPN plans to launch 11 projects with sales value of Bt19.5bn this year, +54% YoY. It has already secured seven of the land plots for these and is negotiating with landowners for the remaining four (project value of Bt8bn). These will underwrite its presales target growth of 17%. With EIAs in hand for seven of the projects, risk of launch and construction delay is unlikely.   

2016 slowing. By our estimates, net profit growth will drop to 19% next year off this year’s high base. Current backlog secures about 25% of our 2016 revenue forecast, in line with historical average of 30%. Contributing most to revenue will be the Bt3.1bn Lumpini 24, the Bt2bn Lumpini Park Nawamin-Sriburapha, the Bt1.8bn Lumpini Park Petchakasem 98, the Bt1.5bn Lumpini CondoTown Romklao-Suwannabhumi and four of this year’s new launches.   

Maintain BUY with TP of Bt27. We like LPN for its high visibility (87% for 2015) and good growth outlook (37% for 2015). We note that the revenue from backlog in 2015 is well grounded as all projects are located in Bangkok and vicinity, where the market is more certain than in the provinces. With attractive TTR of 49%, we reiterate our BUY.