High backlog prompts earnings/valuation upgrade BUY
L.P.N. Development Plc
- 2Q14 presales doubled QoQ to Bt7.0bn to Bt10.1bn in 1H14, 50% of SCBS
- 2015F raised 6%, 2016F by 4% on high backlog
- 2Q14F flat QoQ to Bt350mn; results out on August 8
- Maintain BUY and sector top pick with new PT of Bt27/ share
Presales jump in 2Q14 confirms demand momentum. LPN achieved presales of Bt7.0bn in 2Q14, more than double the Bt3.2bn in 1Q14 on restored demand that lifted take-up rate on launch date for three recent launches to 34-100% from only 20% in 1Q14. The Bt1.7bn Lumpini Place Borommaratchachonnani sold out in a week, presales for the Bt2.2bn Lumpini Park Nawamin-Sriburapha reached 35% and Lumpini Park Petchakasem 98 sold 34%. This good response confirms our expectation of stronger demand HoH in 2H14. 1H14 presales are Bt10.1bn, accounting for 50% of our full year forecast and we expect this momentum to continue through 2H14.
Earnings upgrade on large backlog. We raise 2015F by 6% to a record high of Bt3.2bn, representing superior growth of 56% YoY. The forecast revision is based on the high backlog of Bt24.9bn - already reaching our previous forecast - which now secures 94% of our current 2015 forecast. We believe margin was good at 33.5%, upheld by a high margin for The Lumpini 24, Lumpini Place Srinakarin-Huamark Station, Lumpini Park Rattanathibet-Ngamwongwan, Lumpini Park Rama 9-Ratchada and Lumpini Place Borommaratchachonnani. Our current forecast is in line with consensus but still 5% below company guidance. We also raise 2016F by 4% to Bt3.7bn, but maintain 2014F for which current backlog secures 96% of our forecast.
Valuation upgrade. Following our earnings upgrade, LPN’s ROE comes up to 28.0% in 2015 from previous forecast of 26.5%, highest among peers. We believe LPN deserves a valuation rerating to 3.5x PBV from 3.0x, and this raises our mid-2015 PT to Bt27/share from Bt23/share.
2Q14F of Bt350mn; results out August 8. We estimate 2Q14 net profit at Bt350mn, -56% YoY but flat QoQ: there was no condo completed in the quarter so revenue had to come solely from continued transfers of old projects. Most came from Lumpini Ville Ramkhamhaeng 60/2, Lumpini Mega City Bangna, Condotown Chonburi Sukhumvit and Lumpini View Naklua-Wong Amat. Revenue is expected to grow 5% QoQ in 2Q14, offsetting higher marketing cost, which grows in line with presales. We look for sequential growth QoQ in 3Q14 and 4Q14, implying solid growth of 85% HoH in 2H14.
Reiterate BUY and sector top pick. We like LPN for its superior growth outlook and good visibility for next year. With 94% of revenue already secured by current backlog, there is very little chance it will disappoint. With 56% growth next year, its valuation comes down to 9.7x 2015 PER from 15.2x for 2014 and to 2.5x from 3.0x for PBV. ETR is an attractive 32% and we continue to select this stock as our top pick with a BUY rating.