LPN Development

LPN Development Plc (LPN) 

 

Profit was In line with our estimates

LPN posted a net profit of Bt822m for 2Q15, jumping 124% YoY and soaring 181% QoQ. The result was in line with our estimate and that of the street. The announced interim DPS of Bt0.30 for 1H15 operations (beat our estimate of Bt0.27 mainly due to the higher payout rate—40% in actual terms versus 36% of our forecast) implying a 1.7% simple yield or 3.4% annualized yield, to XD on August 19 and payment on September 3. 

Results highlights

The strong profit growth was driven by top-line expansion and lower SG&A/sales. Residential revenue jumped 112% YoY and 147% QoQ to Bt5bn (the third highest in its history), as two sizable condos started transferring in 2Q15—Lumpini Place Srinakarin Huamark (Bt3bn of total project value, 100% booked and 83% transferred in 2Q15) and Park Rattanathibet (Bt4bn, 98% booked and 31% transferred in 2Q15). SG&A/sales ratio dropped 4.0% YoY and 5.0% QoQ to 10.7% by top-line growth. However, GM dipped 1.6% YoY and 1.2% QoQ to 30.8% YoY due to additional facility cost at the Huamark condo to encourage transfers. The net gearing ratio dipped from 0.6x at end-March to 0.5x at end-June.

Outlook

Quarterly earnings will hit their best point of the year in 3Q15, with strong growth YoY and moderate growth QoQ, driven by higher revenue and lower SG&A/sales. LPN will start transferring three condos in 3Q15: Lumpini CondoTown Rangsit Klong 1 (Bt3.4bn of project value, 77% sold) and Lumpini Park Rama 9 (Bt2.6bn, 100% booked) and Lumpini Ville Onnut-Ladkrabang 2 (Bt1.1bn, 46% booked). 

What’s changed?

Profit for 1H15 comprises 42% of our FY15 forecast, and 41% of the consensus’ number, as we maintain our forecast unchanged. LPN is the earnings growth leader among the firms in our ResDev coverage for 2015 (superior core profit growth of 31% for FY15) with the clearest visibility (presales backlog at end-June of Bt19bn secures 94% of our residential revenue forecast for FY15 and 52% for FY16. The launch of Lumpini Township Rangsit Phase II in October will push revenue visibility for FY16.

Recommendation

Earnings risk is low after the proof of a 49% YoY jump in condo transfers in 1H15. We prefer LPN due to its successful strategy of inventory clearance during the period of economic risk (21% of inventory value has plunged since YE14). Despite only Bt4.8bn from three condo launches in 1H15, presales achieved 45% of its FY15 presales target. The valuations are inexpensive as LPN trades at a FY15 PER of 9.6x, which represents a five-year low that is too cheap against its record profit for FY15. Our BUY rating stands, with a YE15 target price of Bt22, pegged to a target PER of 12x (1SDs above its FY06-14 mean). The short-term catalysts are the three new condo launches in 3Q15, with total value of Bt4bn.