Regional Morning Notes: Comprehensive Analysis of LPN Development

Broker: UOB Kay Hian

Date: Friday, 08 November 2024

Introduction

Welcome to the latest edition of the Regional Morning Notes from UOB Kay Hian, where we dive deep into the financial performance and future outlook of key companies. In this edition, we focus extensively on LPN Development (LPN TB), a property developer specializing in low-end condominiums. Let’s explore the latest updates and insights on LPN Development, including their quarterly results, stock performance, and future projections.

LPN Development (LPN TB)

Company Overview

LPN Development is a property developer known for its focus on low-end condominiums. As of now, the company has issued 1,454.2 million shares and operates under the ticker symbol LPN TB in the real estate sector. The market capitalization stands at 4,246.3 million Baht (approximately 124.0 million USD).

Stock Data

• Share Price: Bt2.92
• Target Price: Bt2.10
• Upside: -28.1%
• 52-week high/low: Bt4.04/Bt2.86
• Major Shareholders:
  • Miss Varunya Chatphiriyaphan – 13.9%
  • Social Security Office – 4.6%
  • South East Asia UK (Type C) Nominees Limited – 2.8%
• FY24 NAV/Share: Bt8.28
• FY24 Net Debt/Share: Bt8.41

3Q24 Financial Performance

LPN Development reported a net profit of Bt46 million for the third quarter of 2024, marking a significant decline of 56% year-over-year (yoy) and 52% quarter-over-quarter (qoq). These results fell short of the forecast by 35%, highlighting the vulnerability of their residential business amidst challenging economic conditions.

Key Financial Metrics for 3Q24

• Sales and Services: Bt2,187 million (up 9.9% yoy, down 7.6% qoq)
• Operating EBIT: Bt113 million (down 22.5% yoy, down 32.7% qoq)
• Core Profit: Bt65 million (down 36.0% yoy, down 38.1% qoq)
• Net Profit: Bt46 million (down 55.6% yoy, down 52.2% qoq)

The gross margin for 3Q24 stood at 18.5%, compared to 22.0% in the same period last year, primarily due to aggressive promotional campaigns. Additionally, the company booked a higher share of losses amounting to Bt22 million due to increased finance costs in JV projects (PUNN and Kamara).

Revenue and Earnings Trends

The transfer revenue for the quarter reached Bt1.56 billion, representing a 12% increase yoy but an 11% decrease qoq. This yoy growth was driven by initial transfers from the new condo project Ville Charun Fai Chai, while the qoq drop was due to the absence of bulk sales. Despite the commencement of transfers for the new project, the residential gross margin remained low at 18.5%.

Key Financials (Year to 31 Dec)

• Net Turnover: Bt10,276 million (2022), Bt7,407 million (2023), Bt7,988 million (2024F), Bt8,242 million (2025F), Bt8,402 million (2026F)
• EBITDA: Bt1,093 million (2022), Bt623 million (2023), Bt601 million (2024F), Bt641 million (2025F), Bt682 million (2026F)
• Net Profit: Bt612 million (2022), Bt353 million (2023), Bt249 million (2024F), Bt298 million (2025F), Bt339 million (2026F)

Stock Impact and Future Outlook

LPN Development faces multiple headwinds that are pressuring presales momentum. The reported presales for 3Q24 were Bt2.2 billion, down 16% yoy and 24% qoq. For the first nine months of 2024, presales totaled Bt6.9 billion, accounting for 63% of the full-year target. Despite aggressive promotional campaigns, the 4Q24 presales are expected to remain under pressure due to economic conditions and decreased purchasing power.

Earnings Revision

We have revised our earnings estimates for 2024 and 2025 down by 26% and 15%, respectively, to reflect more conservative gross margin assumptions and higher-than-expected share of losses.

• 2024F Sales and Services: Bt7,988 million (new), Bt7,701 million (old), Change: 3.7%
• 2025F Sales and Services: Bt8,242 million (new), Bt8,015 million (old), Change: 2.8%
• 2024F Net Profit: Bt249 million (new), Bt337 million (old), Change: -25.9%
• 2025F Net Profit: Bt298 million (new), Bt351 million (old), Change: -15.0%

Risks and Valuation

Key risks include lower-than-expected presales, transfers, and gross margins, as well as tightening bank policies. We maintain our SELL recommendation with a lower target price of Bt2.10. The target price is based on 10x 2025F PE, pegged to 1SD below its 10-year PE average. We remain cautious on LPN’s residential business due to low purchasing power affecting the low-end segment.

Environmental, Social, and Governance (ESG) Initiatives

• Environmental: LPN received a CFO certification in 2023 and aims to reduce its GHG emissions by 2.5% in 2024. The company also joined the Thailand Carbon Neutral Network in 2023.
• Social: LPN helps underprivileged women by hiring them as Community Service Officers and providing education and training. Their subsidiary supports underprivileged women, the elderly, and the disabled to promote their quality of life.
• Governance: LPN follows good corporate governance principles to promote transparency, fairness, and efficiency. Sustainability goals are integrated into their business operations for long-term growth.

Quarterly Presales and Project Launches

The latest trends in quarterly presales and project launches indicate ongoing challenges. The company reported lower presales and project launches in recent quarters, reflecting the impact of economic conditions and the strategic decision to focus on inventory liquidation.

Conclusion

LPN Development faces a challenging environment with multiple headwinds affecting its presales momentum and earnings outlook. The company’s focus on inventory liquidation and aggressive promotional campaigns are likely to continue impacting gross margins. Despite these challenges, LPN remains committed to its ESG initiatives and good corporate governance practices. Investors should closely monitor the company’s performance and strategic adjustments in the coming quarters.