LPN Development

Record Q4 2012 earnings; GM forecast upgrade

LPN Development Plc (LPN)

In line with our estimate

LPN posted an all-time high net profit of Bt1.2bn for 4Q12, up massively from only Bt62m in 4Q11 and growth of 128% QoQ. The result was in line with our estimate and the consensus. Excluding Bt52m in extra gains (Bt48m from selling a 20percent stake in Grand Unity Co Ltd and Bt3m in asset sales), 4Q12 core profit jumped 118% QoQ. LPN announced a Bt0.53 DPS for 2H12 operations (XD on Feb 28; payment on April 11).

Results highlights

The impressive 4Q12 earnings were driven by record condo revenue of Bt6.8bn, up by 669% YoY and 127% QoQ. During the quarter, the remainder of Lumpini Park Riverside-Rama III was recognized and LPN started transferring four condos—Lumpini Ville Pattakakarn, Condotown Northern Pattaya-Sukhumvit, Condotown Ramindra-Ladplakao and Ville Changwattana-Pakkred. Condo GM dipped by 3.6% YoY and 2.4% QoQ to 32.5%, due to a greater proportionate contribution from low-end brands, CondoTown and Ville. However, condo GM for FY12 was 32.5%, which beat our 31.4% assumption, due to good GM for the Lumpini Park Riverside-Rama III project.

Revenue expansion made for a lower SG&A/sales ratio of only 9.5% in 4Q12 (29.5% in 4Q11 and 12.5% in 3Q12). The net gearing ratio also dropped significantly from 0.55x at end-Sept to 0.20x at YE12.

Outlook

We forecast 1Q13 condo revenue growth of 10-20% YoY. Thus, 1Q13 profit is expected to increase YoY (but decline QoQ from the high base set by 4Q12). LPN will report good QoQ earnings growth for 2Q13 and its bottom-line will peak for the year in 3Q13. Lumpni Ville Sukhumvit 109 will start to transfer in March; Mega Bangna, Park Beach Jomtien Pattaya and Ville Naklua-Wong Amart in 2Q13 and Ville Sukhumvit 77 II in 3Q13.

What's changed?

We have revised up our net profit forecasts by 4percent for FY13 and by 7percent for FY14 to factor in a greater GM assumption of 32.2% (up from 31.0%)—we expect fat GM for Park Beach Jomtien Pattaya (28% of FY13 condo revenue). Revenue visibility is high—the presales backlog of Bt18bn secures 81% of our FY13 top-line forecast and 46% of FY14.

Recommendation

Our YE13 target price rises to Bt26 from Bt22 to factor in our earnings upgrade and a re-rated target PER of 14.0x (up from 12.5x). The re-rating was prompted by expected ROE of 29.5percent for FY13—the best since the FY09 peak of 30.9%. LPN's FY13 profit growth profile is an attractive 25%, but it trades at PEG of 0.5x, below the 0.6x sector mean. A short-term catalyst will be good presales at four condo launches in early March (Bt4.5bn—three projects in Bangkok and one upcountry). FY13 launches are likely to exceed earlier management guidance of Bt20bn.