Land & Houses

Land & Houses Plc (LH) 

 

There is little net change in LH’s share price from the first of the year, lacking the spur of strong presales (presales have a 67% correlation with share price). However, more launches in 4Q15, better sentiment and the property incentives are expected to bring a jump in presales and revenue recognition QoQ in 4Q15 and on into 2016-2017. To reflect the rosier future, we raise our forecast for presales by 4-13% and for net profit by 3-11% for 2015-2017 and expect a share price re-rating. Our forecast now suggests good earnings growth of 24% in 2016, the same as in 2013 when LH’s share price was at an all-time high. We raise our mid-2016 TP to Bt12/share and upgrade to BUY.   

 

Improving presales = share price catalyst. LH’s presales will jump substantially QoQ in 4Q15, turning around from a contraction of 36% YoY in 9M15 brought by no new launches, backed by strong October presales and more launches in November. With sentiment improved – as seen in the turnaround in the Consumer Confidence Index – plus property incentives, we expect the launches to meet with good take-up rates. We estimate presales contribution from new launches to rise from 6% in 1H15 to 20% in 2015 and return to a more normal 20-47% in 2016-2017. We raise our full year presales forecast by 4% in 2015, 8% in 2016 and 13% in 2017. Higher presales will be a near term share price catalyst (historical correlation of 67% between presales and share price).  

 

More new launches = more presales. LH plans to launch six projects with sales value of Bt22bn in 4Q15, accounting for 87% of this year’s plan, a jump from only three projects worth Bt3.4bn in 9M15. The launch of 

 

Nantawan Bangna in October brought an impressive take-up rate of 17% (Bt2bn) and we look for a similar rate at other projects launched in November – Laddawan Rama II, Mantana Bangna, Chaiyapruk Bangna, Indy Bangna and Indy Pracha-u-tid 3. We expect new launches to be 

frontloaded in 2016 since 8 projects planned for this year were put off to next year.  

 

Earnings upgrade. We raise our net profit forecast by 3% for 2015, 8% for 2016 and 11% for 2017 in line with our raise in presales assumption. Our current forecast implies a fall in net profit of 7% YoY in 2015, but growth of 2% in 2016 and 21% in 2017. The small growth in 2016 reflects a distortion from 2015’s Bt1.4bn non-recurring gain from selling Verona Gardens apartment in San Francisco and Grande Centre Point Terminal 21 Hotel in Bangkok. Removing this distortion shows a good net profit growth of 24% YoY in 2016, equivalent to 2013 when its share price hit an all-time high. Our current forecast beats consensus by 14% in 2015 probably due to the one-time gain and 8% in 2017 but lags consensus by 3% in 2016.    

 

Upgrade to BUY; PT raised to Bt12/share. We raise PBV valuation to 2.75x from 2.50x following our forecast raise and RoE upgrade. This raises our TP to Bt12.0/share (Bt3.9 for investment and Bt8.1 for real estate), implying a TTR of 40%. With solid CAGR growth of 23% for 2015-2017, PER comes down from 16.3x in 2015 to 13.1x in 2016 and 10.8x in 2017. Strong presales momentum and earnings upgrade should support LH’s share price in near term. BUY.