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L.P.N. Development

Hurriedly selling inventory instead of launching new projects. Profit shrinks SELL

L.P.N. Development Plc (LPN)



- Decrease new developments. Rangsit project delayed by EIA

LPN has decreased a number of new projects to be launched in 2014

from 12 (worth of B20.8bn) to six or seven projects as the political crisis

has dampened purchasing power of home buyers. Two projects launched

in January, which are Lumpini Ville Onnut 46 and Lumpini Ville Onnut-

Pattanakarn, could make disappointing sales of only 20-30%. Thus, the

company decided to postpone the launch of two other projects,

previously scheduled in 1Q14, because the projects had to be

constructed right after the selling, and it will also delay a B4bn-worth

land purchase this year. This is consistent with LPN's plan to reduce cash

outflow and increase cash inflow by selling as many as possible available

for sale projects in its inventory of B4bn. For a B3.4bn-worth Lumpini

Township Rangsit - Klong 1 Phase 1 that has been launched since last

year with current sales of 55%, of which the construction is scheduled to

finish late this year, the project construction is held back by the EIA. If

the company cannot obtain the EIA approval by April 2014, the project

will not be complete and transferred in time to generate revenue, which

means LPN will fail to achieve its revenue target of B15bn or the growth

of 8%yoy this year (current backlog of B7.7bn also includes the Rangsit

project).

- Maintain 2014 forecast; 9percent shrinkage in profit

2014 is a challenging year for LPN to create growth for: the backlog for

this year is low; the Lumpini Township Rangsit - Klong 1 Phase 1, which

is expected to generate revenue of over B2bn, might be delayed; sales

of five projects launched in 1Q14, worth of B7bn, were lower than

expected; and the launch of two new projects was postponed because

LPN's major clients that are middle and lower incomers are highly

sensitive to the economy and political situations. Accordingly, we

maintain our revenue forecast for FY2014 at B13bn or a decrease of

7%yoy, resulting in a profit of B2.1bn or a decrease of 9%yoy.

- Awaiting high revenue growth in 2015. Switch to SPALI, or AP

Although earnings tend to weaken this year, with LPN's strong financial

status with the lowest net gearing among peers at only 0.43x and

backlog of over B13bn that are going to be transferred next year, high

revenue growth can be seen in 2015. Fair value at P/E ratio of 10x is

B14.39. We recommend switching to growth stocks like SPALI or AP for

now.


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