L.P.N. Development

L.P.N. Development Plc 

Yesterday’s nearly 6% fall in LPN’s share price was, in our view, unwarranted panic on news that both presales and revenue would come in below guidance, largely, we believe, because of projects in the provinces. In response we have cut forecasts by 4% for 2014 and 13% for 2016, but maintain 2015. Despite the cut, we still like LPN for its high visibility (85% for 2015) and solid growth outlook (43% for 2015). We note that the revenue from backlog in 2015 is grounded more solidly than in 2014, as all projects are located in Bangkok and vicinity, where the market is more lively and condo prices are rising, giving clients an incentive to transfer the units. At last close, the stock still looks attractive with TTR of 20% and we stand by our BUY.

Hit by slow provincial market. The residential market in the provinces has been quiet, with deed transfers of only Bt12bn this year, 12% below LPN’s previous guidance. This is primarily from large cancelations upcountry for Lumpini Place Udorn-Posri and Lumpini SeaView Jomtien. LPN was the first to launch a condo in Udorn and it sold out quickly – but we believe speculators/investors accounted for a portion of the presales and the very slow market is leading clients to abandon their deposits. 

Further, LPN has in the end launched only two projects in 4Q14 valued at Bt2.6bn and postponed two projects (Lumpini SeaView Cha-am and Lumpini ParkBeach Cha-am), worth Bt2.0bn, to 2015 or later. This is slicing 2014 presales to only Bt17bn, below its target of Bt20bn, and will erode 2016 revenue recognition.

2015 guidance. LPN has revised down its 2015 presales target by 20% to ~Bt20bn, growth of ~20% YoY. It has also reduced revenue estimates by 11% to Bt16bn, in line with our forecast but below consensus, a jump of 33% YoY. We believe the reason for the cut is the postponement of completion of Lumpini 24 to 2016, in line with our field survey a few months ago.

Earnings revision. In response to high cancelations and postponements of project launches (which also puts off condo completion and revenue recognition), we lower our 2014 marginally by 4% to Bt2.0bn (EPS Bt1.33) and 2016 by 13% to Bt3.6bn (EPS Bt2.43). However, we maintain 2015 forecast at Bt2.8bn (EPS Bt1.88) as this is for the most part secured by current backlog. We estimate total backlog at Bt18.0bn at end-2014, which gives good visibility for 2015 revenue recognition of a high of 85% of our forecast. Importantly, this backlog is entirely in Bangkok and vicinity, where the condo market climate is better than in the provinces and where condo prices are rising – giving clients the incentive to hang on to the units they have booked.   

Maintain BUY. Following the earnings downgrade, we lower our PT marginally to Bt26.4/share from Bt26.5/share based on an unchanged 3.5x PBV of the average 2014-2015 BV. LPN has a solid growth outlook for next year and high visibility. At last close, the stock provides an attractive TTR of 20%. We maintain BUY.