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LPN Development

Flat FY14 earnings outlook, but good prospects for FY15

LPN Development Plc (LPN)

Investment thesis

Although LPN's FY14 revenue visibility isn't as clear as is has been in recent years (presales at end-Feb secure only 65% of our FY14 condo revenue forecast; the typical rate is 75-80%), it will deliver impressive earnings growth in FY15 (growth leadership of our coverage). Thus, we maintain our TRADING BUY rating with a target price of Bt18, pegged to a PER of 11x. Any price weakness for poor 1H14 performances would present an opportunity to accumulate the stock.

Earnings forecast trimmed slightly

We have revised down our FY14-15 earnings forecasts by 3%. Our FY14 assumptions fall by 2% to Bt14.5bn for condo revenue (LPN guides for Bt15.2bn) and from 33% to 31.5percent for GM (low-end GM brands are to dominate transference this year). Our new assumptions indicate flat YoY earnings for FY14. Also, for FY15 we have cut our Lumpini 24 (LPN's most high-end condo) revenue assumption from Bt2.8bn to Bt837m, as the project is not now slated to start transferring till late FY15.

Bright FY15 earnings growth outlook

LPN should achieve strong FY15 condo revenue expansion of 20% YoY to Bt17.4bn, as its presales backlog secures 76% of our condo income forecast. GM is expected to fatten from 31.6% in FY14 to 33.0% in FY15, driven by bigger contributions by fat-GM high-end brands—Place, Park and Lumpini 24. High-end brands are expected to comprise only 14% of revenue in FY14, but then surge to 57% in FY15. Among our ResDev coverage, LPN should lead FY15 profit growth at 33% YoY (against a 13% average for our coverage).

Secured plots for 10 condo & two low-rise projects (FY14 launches)

Not counting two condos that launched on Jan 25, LPN has secured land plots for 10 condos and two low-rise projects to launch this year (condos worth Bt17.6bn; low-rise value of Bt1.3bn; details in Figure 2). The firm plans to launch 12 condos valued at Bt21bn this year, up from Bt19bn in FY13. LPN's presales target is Bt26.4bn, up 8% YoY—too optimistic, we believe, given the political unrest. Management targets low-rise revenue expansion from Bt300m for FY13 to Bt500-900m this year.

YoY revenue and profit slippage in 1H14

Presales in 1Q-2Q14 will dive YoY for two straight quarters, due to slow demand (subdued 20-25% take-up rates for two condos launched in Jan with a combined project value of Bt3.4bn) and the high base set by last year (presales of Bt6.5bn in 1Q13 and a record Bt9bn in 2Q13). The FY14 condo revenue breakdown is 40% in 1H14 and 60% in 2H14 (47:43 in FY13). LPN is expected to post YoY declines in revenue and profits for 1Q-2Q14, as less condo value will transfer (three condos worth Bt3.5bn will complete construction and transfer in 1H14 versus condos valued at Bt8.3bn in 1H13).

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