Land & Houses

Land & Houses Plc (LH)  

 

Fuelled by evidence of a good 4Q15 that puts it on track to reach its targets and our forecasts for both presales and revenue, LH’s share price rose 6% since we re-rated the stock early November. It has outdone peers, who slid as much as 12%, and the SET, which fell 9%. LH’s earnings outlook is turning the corner to a growth cycle in 2016-2017 with superior core profit growth of 24% and 21% respectively. This will support further share price re-rating. Our site visit to Rama II and Bangna projects solidifies our confidence and we reiterate BUY.   

2015 operations on track. We expect LH to achieve its revised 2015 targets of Bt25.8bn (-18% YoY) for presales and Bt24.7bn (-5% YoY) for revenue. In 11M15, presales reached Bt23.2bn or 90% of full year target. We expect to see Bt2.6bn more in presales in December, backed by large new launches in 4Q15. Revenue recognition is supported by strong presales of pre-completion low-rise and B2.3bn condo backlog.   

Strong 4Q15 expected. Revenue recognition is poised to set a record in 4Q15 and we believe gross margin will be better, thanks to a greater portion of higher-margin new launches. With a Bt800mn gain from carving off 

Grande Centre Point Terminal 21 Hotel, we estimate net profit of Bt2.9bn in 4Q15, doubling QoQ; on a YoY basis there will be a 10% decline on lower extraordinary gain.   

2016: Guides to strong revenue growth, in line with us. LH guides to high single-digit presales growth YoY in 2016 (implying presales of Bt28bn) and double-digit revenue growth YoY backed by higher condo backlog plus some small improvement in gross margin. These line up with our view and we leave our presales forecast at Bt29bn, 3% above its guidance. We believe our 23% revenue growth forecast is attainable, backed by high condo revenue and strong low-rise products with new launches spread over the year, unlike 2015 when the bulk of new launches was in 4Q15. We leave our net profit forecast unchanged at Bt8.0bn, +6% YoY. Excluding a one-time gain, core profit will turn the corner to a growth cycle with impressive growth of 24% YoY in 2016 versus a contraction of 13% in 2015.  

Site visit solidifies our confidence in the company. We visited Laddawan Rama II and four Bangna projects (Nanatawan, Mantana, Chaiyapruk

and Indy). We were impressed with their strong presales and not surprised at the rapid take-up rates: apart from excellent locations, these are premium quality and innovative. LH’s good differentiation of its product positioning eases our concern on the competition with QH’s projects in Bangna. The strong sales mean project life is likely to be shorter than its plan of 1-5 years. We look for major revenue contribution from these projects in 4Q15 and into 2016.   

Maintain BUY. LH’s growth turnaround with superior growth in 2016-2017 and better visibility should support share price in the near term. At last close, the stock is trading inexpensively at mid-cycle valuation. We maintain TP at Bt12.0/share (Bt3.9 for investment and Bt8.1 for real estate), TTR of 32%. BUY.