Introduction to LPN Development PCL

LPN Development PCL, a property developer specializing in low-end condominiums, has faced a challenging year in 2024. With a focus on affordable housing, the company has been impacted by economic pressures affecting its target demographic. This report provides an in-depth analysis of its financial performance, strategic direction, and market outlook for 2025 and beyond.

Investment Recommendation

The recommendation for LPN Development remains SELL. The target price has been set at Bt2.10, which represents a downside of 13.2% from the current share price of Bt2.42. This valuation reflects concerns over weak presales performance, low backlog levels, and ongoing challenges in the low-income housing segment.

Key Financial Highlights

Key Issues Impacting LPN Development

Weak Presales Performance

LPN reported presales of Bt8.4 billion in 2024, a 15% year-on-year decline. This figure also fell short of the company’s full-year target by 7%. The high-rise segment, which contributed Bt6.5 billion (down 19% YoY), bore the brunt of this decline. Factors such as low purchasing power among low-income buyers and a high rejection rate of 40-50% due to stringent credit evaluation significantly impacted sales.

Segment-Wise Breakdown

The low-rise segment recorded flat growth with Bt1.9 billion in presales. However, the high-rise segment experienced a sharp drop due to reduced project launches, which were down by 64% year-on-year. In the fourth quarter of 2024 alone, presales stood at Bt1.56 billion, representing a 21% year-on-year and 28% quarter-on-quarter decline.

Low Backlog and Earnings Risk

As of December 31, 2024, LPN had a backlog of Bt1.7 billion, with only Bt830 million expected to be recognized in 2025. This accounts for just 15% of the estimated transfers for the year, adding significant downside risk to the earnings forecast.

Outlook for 2025

Earnings Expectations

While transfer activities are expected to accelerate, earnings for the fourth quarter of 2024 are likely to remain lackluster due to weak gross margins driven by aggressive promotional campaigns and elevated SG&A expenses. For 2025, the company plans to focus on inventory reduction and maintain a cautious approach toward new project launches, which are anticipated to remain flat year-on-year.

Debt Management

LPN’s interest-bearing debt stood at 0.93x as of the third quarter of 2024. The company aims to continue managing its debt levels prudently in 2025.

Valuation and Risks

Valuation

The target price of Bt2.10 is based on a 10x 2025F PE ratio, pegged to 1 standard deviation below the company’s 10-year PE average. This conservative valuation reflects ongoing challenges in the low-end residential segment due to weak purchasing power.

Risks

• Lower-than-expected presales and transfers.
• Declining gross margins due to market pressures.
• Tightening bank policies affecting buyer credit approval.

Environmental, Social, and Governance (ESG) Initiatives

Environmental

LPN has committed to reducing its greenhouse gas emissions by 2.5% in 2024 in alignment with The Science Based Targets initiative. The company is also a member of the Thailand Carbon Neutral Network.

Social

LPN actively supports underprivileged communities by hiring women as Community Service Officers and providing education and training. Its subsidiary also focuses on improving the quality of life for the elderly, disabled, and other underprivileged groups.

Governance

The company adheres to robust corporate governance principles, emphasizing transparency, fairness, and sustainability in its operations.

Conclusion

LPN Development PCL faces significant challenges in the low-end residential segment, exacerbated by economic pressures on its target demographic. The company’s weak presales performance, limited backlog, and cautious outlook for 2025 underline the maintained SELL recommendation. Investors should remain vigilant regarding the risks associated with this stock while keeping an eye on potential catalysts such as improved presales or better-than-expected unit transfers.