Land and Houses

Record core profit!

Land and Houses Plc (LH)

Positive surprise!

LH reported a record core profit of Bt1.6bn for 4Q12 (its last record was in 3Q04), up by 124% YoY and 9% QoQ. The number was 16% above our estimate (due to a lower effective tax rate than modeled) and 25% ahead of the consensus. Net profit was Bt1.6bn, down 9% YoY but up 44% QoQ. LH's 4Q11 bottom-line set a high base, due to huge a tax credit and a Bt347m gain from the sale of an asset in Indonesia.

The firm announced a final DPS of Bt0.15 (Bt0.30 paid for 9M12). XD on April 26; payment on May 22. The DPS was in line with our expectation and makes for a full-year DPS of Bt0.45.

Results highlights

Core earnings were driven by unprecedented housing revenue of Bt6.4bn, up by 19% YoY and 3% QoQ (84% low-rise, the rest of condo). Low-rise sales were strong at Bt5.4bn, up by 126% YoY and 10% QoQ. Housing GM rose from 32.5% in 4Q11 to 34.9% in 4Q12, led by fat GM for SDHs of 36.2% (32.9percent for condos and 28percent for THs—the firm held a clearance sale for a Ladprao TH project during the quarter). The high revenue meant that the SG&A/sales ratio declined by 4.9% YoY and 1.2% QoQ to 13.4%. Profit-sharing from affiliates jumped 82% YoY—QH, HMPRO and QCON. Net gearing dropped from 0.93x at end-Sept to 0.85x at YE12.

Outlook

1Q13 core earnings will jump YoY, driven by housing sales and a fatter GM, we anticipate. LH's Jan-Feb presales jumped 56% YoY, led by low-rise. Housing GM in 1Q12 set at a low base of 31.9% versus 34-35% recently. On a QoQ basis, core profit is expected to decline somewhat. Note also that in 1Q12 LH realized a Bt515m gain from asset sales to its property fund, so the 1Q13 bottom-line will post a YoY drop.

What's changed?

We have revised up our core profit forecasts by 2percent for FY13 and 4percent for FY14 to factor in greater expectations for profit-sharing from affiliates (up by 7percent for FY13 and 11percent for FY14, which reflects our projection upgrades for QH). We assume 12% growth in housing revenue to Bt25bn in FY13 (in line with LH's target). Our housing GM assumption of 35.2% is more aggressive than management guidance of 34.5%.

Recommendation

Our BUY call stands on LH, the bellwether for the low-rise recovery. We have upgraded our YE13 target price to Bt13 (from Bt12) to reflect our new model, pegged to an SOTP valuation—a target housing PER of 20x (1SD above its FY06-12 mean) and Bt4.5/share of investment value. LH trades at an FY13 PER of 18.5x, 0.7SD above its long-term mean. There may also be scope for earnings upside from the divestment of assets or shareholdings in associates.