Company Update - Global Alliance Partners
Company Update June 17, 2014
Land and Houses
Buy (TP Bt11.10)
Stable and strong developer
Price Bt10.00
Although only 2.0% growth of norm. profit is expected in 2014, the bottom line should rise by 11.4% in 2015E on the back of GPM recovery and a 5.2% increase in transfers. Bt7.7bn presales backlog to be realized this year and 1Q14 transfers already secure 52.0% of 2014E transfers, implying relatively high revenue visibility for the low-rise specialist. We initiate coverage on LH with a Buy and an Bt11.10 TP (18.0x PER) on the back of highly secured transfers and potential upsides to earnings. Decent outlook on streams of CD completions Our 2014E norm. profit is only Bt6.6bn (+2.0%) as we expect revenue growth of 10.0% to be offset by lower norm. NPM (2013: 25.7% vs. 2014E: 23.9%). Nevertheless, the bottom line should increase by 11.4% to Bt7.3bn in 2015E on the back of GPM recovery and a 5.5% rise in revenue. Over half of 2014E transfers are secured Of the total backlog of Bt15.8bn as of 31 Mar 14, Bt7.7bn should be realized during the rest of 2014, implying that 52.0% of 2014E transfers are already secured. The majority of the revenue and earnings should be in 2H14 due to concentrated CD completions in 4Q14. Possible upside for CD transfers Our 2014E CD transfers of Bt4.7bn (+63.8%) are already 130% secured, so there’s some room for upside. Also, the potential sale of a shopping mall, Terminal 21, is not yet included in our model. A downside risk is higher-than-expected dilution from warrants. Initiate coverage with Buy We initiate coverage on LH with a Buy rating and a TP of Bt11.10. The TP is based on 2014E PER of 18.0x, +0.5 SD over the 2007-14 mean of forward PER. The premium over the historical average is given because 2014E-15E transfers are more secured than any past year thanks to successful CD launches during 2012-13.
FY Ended 31 Dec Norm. PER (x) EV/EBITDA (x) PBV (x) Dividend yield (%) ROE (%) Net gearing (%)
1M
3M
12M
1.52
4.16
-1.00
-2.70
-3.65
-8.24
Absolute Relative to SET Share data Reuters / Bloomberg
LH.BK/LH TB
Sector
Property Development
Paid-up Shares (m)
10,025.92
Par (Bt)
1.00
Market cap (Bt bn / US$ m)
100.00/3,103.00
Foreign limit / actual (%)
30.00/29.99
52 week High / Low (Bt)
12.40/7.90
Avg. daily T/O (shares 000)
22,924.00
NVDR (%)
18.15
Estimated free float (%)
52.14
Beta
1.67
URL
www.lh.co.th
Major Shareholders (06/05/2014) Mr. Anant Asavabhokhin
23.76 %
Thai NVDR Co., Ltd.
17.93 %
GIC Private Limited - C
16.11 % FY14
FY15
Consensus EPS (Bt)
0.620
0.687
KT ZMICO vs. consensus
3.2%
-2.5%
Company Profile
Financial and Valuation FY Ended 31 Dec Revenues (Btm) Net profit (Btm) Norm. profit (Btm) Norm. EPS (Bt) Norm. EPS growth (%) Dividend (Bt) BV (Bt)
Stock Performance (%)
2011
2012
2013
2014E
2015E
19,229 5,609
24,103 5,682
25,075 6,478
27,558 6,559
29,069 7,332
3,631
5,744
6,449
6,580
7,332
0.36 -3.4 0.40 2.93
0.57 58.2 0.45 3.14
0.64 12.3 0.40 3.35
0.64 -1.3 0.39 3.71
0.67 4.7 0.41 4.00
2012
2013
2014E
2015E
17.6 15.1 3.19 4.50 18.68 0.83
15.5 14.3 2.99 4.00 19.93 1.00
15.8 14.3 2.69 3.92 18.21 0.93
15.0 13.2 2.50 4.12 17.77 0.88
2011
17.9 15.5 3.41 4.00 19.71 0.87
The Company engages in the development of commercial buildings and residential housing. The Company develops detached houses, townhouses and condominiums in Bangkok and the surrounding areas. It also has projects in Chiang Mai, Nakhon Ratchasima, Khon Kaen and Phuket. CGR 2013
Wasu Mattanapotchanart Analyst, no. 44357 [email protected] 66 (0) 2624-6268
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 1 of 15
Valuation Initiate coverage with Buy We initiate coverage on LH with a Buy rating and a TP of Bt11.10. The TP is based on 2014E PER of 18.0x, +0.5 SD over the 2007-14 mean of forward PER. The premium over the historical average is given because 2014E-15E transfers are more secured than any past year thanks to successful CD launches during 2012-13. Figure 1: Implied 2014E PER for business units based on market prices
Residential + Rental Investments in associates Total
2014E Norm. PER 12.11 22.10 15.39
Held Market Cap 53,531 47,731 101,262
Shared 2014E Earnings 4,420 2,160 6,580
Source: LH, KT ZMICO Research Figure 2: PER Band and sensitivity of market prices based on PER at different standard deviation levels
Source: Bloomberg, KT ZMICO Research
Implied market price
Upside/Downside
PER (x)
(Bt)
(%)
+2.0SD
23.1
14.19
41.9
+1.0SD
19.6
12.08
20.8
+0.5SD
17.9
11.02
10.2
Average
16.2
9.96
-0.4
-0.5SD
14.5
8.91
-10.9
-1SD
12.8
7.85
-21.5
2014R norm. EPS = Bt0.62, based on expected number of shares at end-2014
Figure 3: PBV Band and sensitivity of market prices based on PBV at different standard deviation levels
PBV
Implied Market price
(x)
(Bt)
(%)
3.6
13.0
30.2
+1.0SD
3.0
10.9
9.3
+0.5SD
2.7
9.9
-1.2
+2.0SD
Source: Bloomberg, KT ZMICO Research
Upside/Downside
Average
2.5
8.8
-11.6
-0.5SD
2.2
7.8
-22.0
-1.0SD
1.9
6.8
-32.5
2014E BVPS = Bt3.60, based on expected number of shares at end-2014
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 2 of 15
Figure 4: Peer comparison Ticker
Price
TP
Rating
LH TB Equity
(Local) 10.00
11.10
PS TB Equity
27.75
24.10
SPALI TB Equity QH TB Equity LPN TB Equity SIRI TB Equity
21.60 3.40 19.30 2.10
22.60 3.74 18.20 1.62
Buy Sell Into Strength Buy Buy Sell Sell Sell Into Strength Buy Sell -
5.90
5.36
SC TB Equity PF TB Equity NOBLE TB Equity THAILAND'S AVERAGE
AP TB Equity
3.32 1.43 10.50
3.68 0.82 -
CAPL SP Equity CIT SP Equity KPLD SP Equity GUOL SP Equity WP SP Equity WINGT SP Equity HOBEE SP Equity SINGAPORE'S AVERAGE
3.17 10.42 3.4 2.15 1.775 1.96 2.24
SMRA IJ Equity CTRA IJ Equity DILD IJ Equity CTRS IJ Equity CTRP IJ Equity ELTY IJ Equity INDONESIA'S AVERAGE
1,220 1,040 474 2,315 720 50
KLCCSS MK Equity UEMS MK Equity SPSB MK Equity IGB MK Equity MSGB MK Equity MRC MK Equity MALAYSIA'S AVERAGE
6.41 2.08 2.94 2.71 2.29 1.61
600048 CH Equity 2007 HK Equity 3383 HK Equity CHINA'S AVERAGE
5.13 3.19 6.1
16 HK Equity 688 HK Equity 12 HK Equity 101 HK Equity 1109 HK Equity 83 HK Equity 813 HK Equity HONG KONG'S AVERAGE
106.9 20.3 46.4 23.8 14.94 12.78 14.72
Mkt Cap (US$m) 3,098
14E -2.0
15E 5.0
13A 15.5
14E 15.8
15E 15.0
Yield (%) 14E 3.9
13A 14.0
1,907 1,146 965 880 623
48.6
-2.0
25.1
10.8
11.0
8.8
4.1
21.2
5.1 96.9 8.2 -46.5
58.2 -7.8 0.2 2.8
9.6 16.1 35.4 46.5
12.9 9.6 12.7 9.5
8.2 10.9 12.7 9.2
7.5 9.4 9.3 6.3
4.9 4.1 4.0 7.1
30.3 16.3 23.2 16.2
Norm. EPS growth
Norm. PER (x)
ROE (%) 14E 18.2
521
-4.9
-4.6
16.7
8.5
8.9
7.7
3.7
13.1
381 256 148
-11.4 -92.2 8.7
40.0 2420 -17.8
0.7 -60.3 -48.1
11.8 299.5 14.8
8.2 11.9 15.6
8.1 29.9 30.0
4.9 3.2 3.4
13.7 7.9 7.1
40.6
11.2
13.2
4.3
16.7
15.2 13.0 5.8 57.1 50.6 3.0 2.4
19.9 15.0 12.9 15.4 20.6 9.9 24.3
18.0 13.7 11.6 11.3 14.9 8.1 17.9
2.5 1.3 2.9 n/a 3.4 3.8 2.1
4.7 7.8 5.8 n/a 4.0 5.2 2.8
21.0
16.9
13.6
2.7
5.0
10.2 11.6 10.1 6.5 8.8 n/a
15.4 13.1 11.7 8.6 12.4 n/a
13.7 10.8 8.8 6.9 8.0 n/a
2.0 1.9 1.4 3.8 3.0 n/a
23.3 17.9 9.5 22.4 8.8 n/a
9.2
11.5
8.6
2.5
14.7
20.0 17.7 17.1 18.0 10.5 n/a
17.3 16.8 14.8 16.4 10.3 41.3
16.6 16.1 11.2 15.5 8.7 27.3
5.2 1.9 4.1 2.4 4.0 1.1
8.8 8.7 8.6 5.2 16.4 5.3
16.7
19.5
15.9
3.1
8.8
5.5 7.8 4.3
4.1 4.6 3.6
3.4 3.8 3.2
4.9 7.8 7.9
20.9 21.0 14.1
5.9
4.1
3.5
6.9
18.7
6.6 7.7 7.4 15.2 7.6 5.5 6.5
13.4 7.2 15.7 18.9 7.7 15.6 4.6
14.6 6.0 15.6 16.5 6.1 14.9 3.9
3.1 2.7 2.1 3.2 3.5 3.9 6.6
5.5 19.3 3.9 4.5 12.8 4.4 18.8
8.3
11.6
10.5
3.7
10.6
10,791 7,574 4,201 2,034 1,698 1,231 1,195
1,489 1,334 416 388 375 184
3,588 2,927 2,295 1,122 1,015 824
8,820 7,596 2,740
37,581 21,406 17,772 13,771 11,239 9,920 6,594
-45.7 -1.5 16.6 -36.8 -63.4 21.0 227.3
33.0 64.1 82.4 45.3 40.0 n/a
14.3 27.9 -12.7 20.8 3.5 -272
28.0 22.3 -3.8
-15.7 20.0 23.7 -18.3 15.6 23.4 66.4
33.6 -3.7 -26.7 288.9 152.9 -47.2 -89.5
3.4 23.7 30.5 33.6 -16.9 n/a
-29.5 -6.8 10.6 9.3 3.3 152.7
25.1 18.7 0.5
13.0 22.3 -3.0 11.7 29.8 -26.8 21.0
10.7 9.4 11.8 35.7 38.4 22.7 35.9
12.6 21.6 32.6 24.3 53.7 n/a
4.0 4.0 32.8 6.1 18.0 51.3
20.8 21.5 11.4
-8.0 18.5 0.8 14.3 24.7 4.9 19.8
Source: Bloomberg, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 3 of 15
Earnings prospects CD transfers and residential GPM to dictate growth We expect revenue from project sales to grow by 10.9% in 2014 and 5.2% in 2015 thanks to rising CD completions and transfers. However, norm. profit should rise by only 2.0% in 2014 due to a declining residential GPM. The residential GPM should then rise from 34.9% in 2014E to 35.6% in 2015E when extra “indirect costs” will already be paid off (see “Financials” section for more on GPM trend), resulting in earnings growth of 11.4% in 2015E. Higher rent from US should offset lower hotel income in Thailand LH hinted that there would not be much growth in rental income this year as its hotels have been negatively impacted by the political stalemate and ongoing martial law. However, part of this should be offset by higher rent from its second apartment (USD104m) in San Francisco, California, US. LH bought the apartment in Sep 13, so 2014 will be the first year that it fully contributes rental income, causing LH’s overseas rent to rise from Bt92m in 2013 to around Bt200m in 2014E. As a result, we have 2014E rental and service income of Bt2.1bn (-1.2%). Figure 5: Transfers
Source: LH, KT ZMICO Research Figure 7: Rental income and service (2013 vs. 2014E)
Source: LH, KT ZMICO Research
Figure 6: Presales
Source: LH, KT ZMICO Research Figure 8: Revenue and norm. profit
Source: LH, KT ZMICO Research
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page 4 of 15
Figure 9: CD transfers
Figure 10: CD completion in 2014 as of 31 Mar 14 Value Transfer Project (Btm) Sold starts The Key - Sathorn Rajapruk
1,790
100%
Feb-14
North 2 - Chiang Mai
160
90%
Mar-14
North 3 - Chiang Mai The Room - BTS Wongwienyai
160
74%
Jun-14
1,580
100%
Oct-14
North 5 - Chiang Mai
160
50%
Oct-14
2,700
55%
Nov-14
160
95%
Nov-14
780
60%
Dec-14
Wan-Way-La - Kao Tao North 4 - Chiang Mai Ease Rama II Total Source: LH, KT ZMICO Research
7,490
Source: LH, KT ZMICO Research
Backlog at record high after it penetrated CD market LH’s backlog is at a record high of Bt15.8bn, up from Bt14.8bn at end-2013 and Bt7.6bn at end-2012. This is in line with strong CD presales, which grew at the rates of 75.2% and 68.6% in 2012 and 2013, respectively, as most of LH’s CD launches were very successful. Figure 11: Contribution of backlog as of 31 Mar 14
Source: LH, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 5 of 15
Figure 12: % of annual transfers secured by backlog at the beginning of the year/period
Source: LH, KT ZMICO Research Figure 13: Project launches 2014
Source: LH, KT ZMICO Research
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page 6 of 15
Financials Figure 14: Major assumptions 2011
2012
2013
2014E
2015E
18,580
22,305
22,939
25,448
26,768
13,702
16,435
18,330
19,000
19,950
TH
1,183
1,895
1,727
1,727
1,813
CD
3,695
3,975
2,882
4,721
5,005
649
1,797
2,136
2,109
2,300
19,229
24,103
25,075
27,558
29,069
12.3
20.0
2.8
10.9
5.2
9.0
19.9
11.5
3.7
5.0
TH
-29.8
60.2
-8.9
0.0
5.0
CD
61.1
7.6
-27.5
63.8
6.0
Rent
85.3
176.9
18.9
-1.2
9.1
Total
13.8
25.3
4.0
9.9
5.5
32.6
34.0
35.8
34.8
35.6
SDH
33.9
35.0
37.5
37.0
37.5
TH
28.6
30.6
31.8
31.8
31.8
CD
30.0
31.5
27.3
27.3
29.6
Rent
28.3
40.3
41.3
41.3
42.0
Total
32.5
34.5
36.2
35.3
36.1
Norm. NPM
18.9
23.8
25.7
23.9
25.2
Revenue Residential SDH
Rent Total Growth (%) Residential SDH
GPM (%) Residential
Source: LH, KT ZMICO Research
GPM to edge lower in 2014E due to some indirect costs We expect the residential GPM to decline from 35.8% in 2013 to 34.8% in 2014E before improving to 35.6% in 2015E. The expected fall in 2014 is due to the final sale of Nanthawan Srinakarin (> 1,200 units), which is around 20 years old. Before LH hands the project over to a property management firm, it has to repair all the utilities and infrastructure, which entails some “indirect costs” that LH normally books in the cost of goods sold. The cost of fixing this big project is expected to be Bt92m – Bt120m in 2014 (~0.4% of 2014E transfers). These indirect costs should be over within 2014, resulting in GPM improvement in 2015.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 7 of 15
Figure 15: Residential GPM
Source: LH, KT ZMICO Research
Figure 16: Operating margin
Source: LH, KT ZMICO Research
Associated companies expected to continue being major part of norm. profit QH and LH are the two developers with the highest amount of investments in other companies and rental assets. LH’s investment in associates contributed 32.7% of LH’s norm. profit in 2013, and the share should remain quite stable during the next two years. We expect 2014E share of profit from associates of Bt2.2bn (+2.4%); the rather low growth rate is due to the fact that most of HMPRO’s rise in profit is expected to be offset by QH’s decrease in earnings. Issuance of warrants to help keep leverage ratio low LH wants to remain financially conservative with a gearing ratio below 1.0x (1Q14: 1.06x); at the same time, it doesn’t want to forgo investment opportunities, and that’s why it distributed 1,998,184,856 warrants, namely LH-W3, to shareholders at the distribution ratio of 5 existing shares: 1 new warrant. Each of these warrants comes with an exercise price of Bt3.5 per share, and it will be valid until 5 May 2017. Figure 17: Share of profit from associates (normalized)
Figure 18: Investment in associates as of 25 Mar 14
as % of norm. profit
Source: LH, KT ZMICO Research
LH's Stake
Carrying amount (Btm)
LHBANK
34.1%
5,137
Q-CON
21.2%
420
HMPRO
30.2%
4,463
Asia Asset Advisory
40.0%
9
L&H Property Fund
49.9%
32
L&H Property and Loan Fund II
50.0%
537
QH
25.0%
5,180
Total investments Source: LH, KT ZMICO Research
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15,778
page 8 of 15
Figure 19: Details of LH-W3 First day of trading # of warrants (million) Distributed to existing shareholders
Right of warrant holders
Exercise periods Expiration date Source: LH, KT ZMICO Research
Figure 20: Leverage ratios 2011 – 2015E 30-May-14 1998.2 5 existing shares: 1 warrant Each warrant could be exercised to purchase 1 share of LH at Bt3.5 per share Last working days of Mar, Jun, Sep and Dec 5-May-17 Source: LH, KT ZMICO Research
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page 9 of 15
Industry outlook Presales outlook hinges on stability after the coup The impact of the coup on the property sector remains to be seen. If the situation remains relatively stable, i.e., the anti-coup demonstrations do not lead to violence, the direct impact on presales should be minimal. Transfers and earnings to be back-loaded Since completions of CDs are concentrated in the last seven months of the year, transfers of most developers should be quite back-loaded; in other words, 2H14 transfers should account for around 60.0% of the 2014E transfers. Increase in development costs to decelerate We don’t expect the problems of labor shortages and rising prices of construction materials to worsen in 2014. This is because the Bt2.2trn government budget for infrastructure investment was already ruled illegal by the Constitutional Court and a number of infrastructure projects have been delayed due to the lack of a fully functional government until the coup on 22 May 14. Land prices are also not expected to increase much. In fact, some developers reported that land prices have been flat so far this year due to the slowdown in the property market and economic growth in general. High household debt remains an obstacle We believe the record-high household-debt-to-GDP ratio of 82.3% will limit consumers’ purchasing power in 2014, resulting in an 11.5% decline in presales.
Figure 21: Household debt to GDP as of end-3Q13
Source: BoT, KT ZMICO Research
Figure 22: Sector’s presales growth
Source: Company data, KT ZMICO Research
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page 10 of 15
Upside risk / Downside risk 2014E CD transfers already 130% secured 1Q14 CD transfers were Bt808m, and the CD backlog to be realized during the rest of 2014 is Bt5.3bn; these two numbers imply that our 2014E CD transfers of Bt4.7bn (+63.8%) are 130% secured. We are being conservative since most condo completions will occur in 4Q14; thus, delays from the planned transfers are possible. Nevertheless, we believe there is some upside to our projection; if LH can fully realize the CD backlog of Bt5.3bn during the rest of 2014, the TP would go up to Bt11.30 from the current TP of Bt11.10. Sale of shopping mall (Terminal 21) not yet included Last year, LH obtained the right to sell the shopping mall part of its 60%-owned Terminal 21 to a property fund. Its right will remain valid through 31 Dec 14. LH is looking for the right timing to sell the asset, saying that it will sell the mall only when the required dividend yield from the market is 7.0% or below. The shopping mall investment is worth around Bt3.0bn and the developer hopes to sell it for Bt6.0bn to a property fund, in which we expect LH to hold a 30.0% stake. Dilution from warrants When fully exercised, the new set of warrants will result in control dilution of 15.8%. We calculate our TP of Bt11.10 (18.0x 2014E PER) using the expected number of shares at the end of 2014, based on the assumption that only one-third of the warrants will be exercised this year. This means that a higher-than-expected amount of warrants being exercised would lead to a reduction of the TP.
Figure 23: Potential sale of Terminal 21 shopping mall
Figure 24: Exercise periods of warrants
(60% held by LH) Btm 5,000 6,000 1,000
Book value Selling price Gain on sale Realized gain on sale to LH*
300
*assuming LH will buy 30.0% of the property fund
Source: LH, KT ZMICO Research
Source: LH, KT ZMICO Research Figure 25: Scenario of dilution impact on TP Percentage of warrants exercised by end-2014
Dilution
33.3%
40.0%
50.0%
6.2%
7.4%
9.1%
10.9
10.7
11.10 TP Source: LH, KT ZMICO Research
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page 11 of 15
Company Background Land and Houses (LH) is Thailand’s largest residential property developer in terms of market capitalization and the third largest in terms of 2013 revenue and presales. LH has a presence in the Bangkok Metropolitan Area, Chiang Mai, Chiang Rai, Khon Kaen, Nakhonratchasima, Udonthani, Hua Hin and Phuket. The company’s advantages lie in market expertise, superior quality, strong brand loyalty and a conservative financial approach.
Figure 26: 2013 presales by company
Source: Company data, KT ZMICO Research Figure 28: Revenue breakdown 2013
Source: LH, KT ZMICO Research
Figure 27: 2013 revenue by company
Source: Company data, KT ZMICO Research Figure 29: Presales and realized sales
Source: LH, KT ZMICO Research
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page 12 of 15
Figure 30: Presales by segment 2013
Source: LH, KT ZMICO Research Figure 31: LH’s brands of property projects for sale
SDH Brand
TH
Price range (Btm)
Brand
Price range (Btm)
CD Brand
Price range (Btm)
Inizio
2.8 - 3.5
Indy
1.5 - 2.0
Ease
1.5 - 2.0
Villaggio
3.4 - 4.0
Villaggio
1.8 - 2.5
The Key
2.2 - 4.0
Chollada
3.5 - 5.0
Baan Mai
3.0 - 4.0
The Room
6.0 - 12.0
Mantana
5.5 - 15.0
Terrace
4.0 - 5.0
The Bangkok
10.0 - 25.0
Nantawan
16.0 - 30.0
Baan Wan Vayla
5.0 - 30.0
Ladawan
> 30.0
Source: LH, KT ZMICO Research
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page 13 of 15
FINANCIAL TABLE PROFIT & LOSS (Btmn) Revenues Cost of sales and service Gross profit SG&A EBITDA Depreciation & amortization EBIT Interest expense Other income / exp. EBT Corporate tax Forex gain (loss) Extra Items Gain (loss) from affiliates Net profit Reported EPS Fully diluted EPS Core net profit Core EPS Dividend (Bt) BALANCE SHEET (Btmn) Cash and equivalents Accounts receivable Inventories PP&E-net Other assets Total assets ST debt & current portion Long-term debt Total liabilities Paid-up shares Shareholder equity Total liab. & shareholder equity
2011 19,229 (12,981) 6,248 (3,062) 7,586 351 7,236 (310) 53 6,979 (1,399)
2012 24,103 (15,792) 8,310 (3,518) 7,819 494 7,324 (488) 68 6,904 (1,119)
2013 25,075 (15,990) 9,085 (3,436) 8,768 509 8,259 (570) 93 7,782 (1,102)
2014E 27,558 (17,818) 9,739 (3,873) 8,949 500 8,449 (656) 78 7,871 (1,127)
2015E 29,069 (18,563) 10,505 (4,080) 9,887 500 9,387 (702) 82 8,767 (1,235)
2,611 1,156 5,609 0.56 0.56 3,631 0.36 0.40
(83) 2,285 5,682 0.57 0.57 5,744 0.57 0.45
37 2,109 6,478 0.65 0.65 6,449 0.64 0.40
(26) 2,160 6,559 0.63 0.55 6,580 0.64 0.39
0 2,508 7,332 0.67 0.61 7,332 0.67 0.41
2011 1,199 105 31,472 638 27,418 60,833 8,762 17,941 30,360 10,026 30,472 60,833
2012 1,462 120 32,537 651 30,271 65,040 7,319 20,163 32,438 10,026 32,603 65,040
2013 1,166 136 38,496 616 34,955 75,369 8,507 26,104 40,526 10,026 34,843 75,369
2014E 1,708 144 45,203 407 35,857 83,318 6,398 31,104 43,486 10,692 39,832 83,318
2015E 1,054 151 52,606 196 37,400 91,406 8,579 31,104 45,853 11,358 45,553 91,406
CASH FLOW (Btmn) Net income Forex and other extraordinary adjustments Depreciation & amortization Change in working capital Cash flow from operations Capex (Invest)/Divest Others Cash flow from investing Debt financing (repayment) Equity financing Dividend payment Others Cash flow from financing Net change in cash
2011 5,609
2012 5,682
2013 6,478
2014E 6,559
2015E 7,332
(2,477) 351 (14,541) (1,011) (358) 496 138 3,317 0 (3,487) 112 (59) (932)
388 494 (13,936) 5,008 156 729 885 (363) 0 (5,266) (0) (5,629) 263
220 509 (18,490) 662 (4,082) 1,215 (2,867) 5,921 0 (3,977) (0) 1,945 (297)
0 500 (22,990) (1,548) 50 829 879 2,891 2,331 (4,010) 0 1,212 542
0 500 (24,555) (2,030) 0 924 924 2,181 2,331 (4,060) 0 451 (654)
Free cash flow
(2,721)
3,663
(3,020)
(1,000)
(1,445)
(0.27)
0.37
(0.30)
(0.10)
(0.13)
2011 13.8 34.3 41.2 32.5 39.5 16.6 29.2 18.9 (24.2)
2012 25.3 3.1 1.3 34.5 32.4 19.9 23.6 23.8 (24.6)
2013 4.0 12.1 14.0 36.2 35.0 22.5 25.8 25.7 (19.7)
2014E 9.9 2.1 (2.0) 35.3 32.5 21.3 23.8 23.9 (20.0)
2015E 5.5 10.5 5.0 36.1 34.0 22.1 25.2 25.2 (20.0)
FCF per share (Bt) PROFITABILITY Revenue growth (%) EBITDA growth (%) EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%)
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 14 of 15
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS BUY: Expecting positive total returns of 15% or more over the next 12 months TRADING BUY: Expecting positive total returns of 10% or more over the next 3 months
SECTOR RECOMMENDATIONS OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months.
SELL INTO STRENGTH: Expecting total returns between -10% to +10% over the next 12 month; share price has largely priced in fundamentals
The industry, as defined by the NEUTRAL: analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months.
SELL: Expecting negative total returns of 10% or more over the next 12 months
UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 15 of 15
th
th
th
th
KT•ZMICO Securities Company Limited
st
8 , 15 -17 , 19 , 21 Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500 Telephone: (66-2) 695-5000
Phaholyothin Branch
rd
Fax. (66-2) 631-1709
Ploenchit Branch
th
nd
2
Sindhorn Branch
3 Floor, Shinnawatra Tower II,
8 Floor, Ton Son Tower,
1291/1 Phaholyothin Road,
900 Ploenchit Road, Lumpini,
Floor, Sindhorn Tower 1, 130-132 Wireless Road, Lumpini,
Phayathai, Bangkok 10400
Pathumwan, Bangkok 10330
Pathumwan, Bangkok 10330
Telephone: (66-2) 686-1500
Telephone: (66-2) 626-6000
Telephone: (66-2) 627-3550
Fax. (66-2) 686-1666
Fax. (66-2) 626-6111
Fax. (66-2) 627-3582, 627-3600
Nakhon Pathom Branch 1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
Chachoengsao Branch
Viphavadee Branch
Phitsanulok Branch
G Floor, Lao Peng Nguan 1 Bldg.,
Krung Thai Bank, Singhawat Branch
333 Soi Cheypuand, Viphavadee-Rangsit Road,
114 Singhawat Road,
Ladyao, Jatujak, Bangkok 10900
Muang, Phitsanulok 65000
Telephone: (66-2) 618-8500
Telephone: 083-490-2873
Fax. (66-2) 618-8569
th
Chonburi Branch
Pattaya Branch
108/34-36 Mahajakkrapad Road,
4 Floor, Forum Plaza Bldg.,
382/6-8 Moo 9, T. NongPrue,
T.Namuang, A.Muang,
870/52 Sukhumvit Road, T. Bangplasoy,
A. Banglamung, Cholburi 20260
Chachoengsao 24000
A. Muang, Cholburi 20000
Telephone: (038) 362-420-9
Telephone: (038) 813-088
Telephone: (038) 287-635
Fax. (038) 362-430
Fax. (038) 813-099
Fax. (038) 287-637
Khon Kaen Branch
5th Floor, Charoen Thani Princess Hotel,
Hat Yai Branch
Sriworajak Building Branch
200/301 Juldis Hatyai Plaza Floor 3,
1st – 2nd Floor, Sriworajak Building, 222
260 Srichan Road, T. Naimuang,
Niphat-Uthit 3 Rd,
Luang Road, Pomprab,
A. Muang, Khon Kaen 40000
Hatyai Songkhla 90110
Bankgok 10100
Telephone: (043) 389-171-193
Telephone: (074) 355-530-3
Telephone: (02) 689-3100
Fax. (043) 389-209
Fax: (074) 355-534
Fax. (02) 689-3199
Central World Branch
Chiang Mai Branch
Phuket Branch
999/9 The Offices at Central World,
422/49 Changklan Road, Changklan
22/61-63, Luang Por Wat Chalong Road,
16th Fl., Rama 1 Rd, Pathumwan,
Subdistrict, Amphoe Meuang,
Talat Yai, Mueang Phuket,
Bangkok 10330
Chiang Mai 50100
Phuket 83000
Telephone: (66-2) 673-5000,
Telephone: (053) 270-072
Tel. (076) 222-811,(076) 222-683
(66-2) 264-5888 Fax. (66-2) 264-5899
Fax: (053) 272-618
Fax. (076) 222-861
Pak Chong Branch
Cyber Branch @ North Nana
173 175, Mittapap Road,
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua Subdistrict , Wattana District, Bangkok 10110 Telephone: 083-490-2871
Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Tel. (044) 279-511 Fax. (044) 279-574
Nakhon Ratchasima Branch
Bangkhae Branch
6th Floor The Mall Group Building Bangkhae 275 Moo 1 Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Tel. (66-2) 454-9979 Fax. (66-2) 454-9970
624/9 Changphuek Road, . Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171 Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.
Land and Houses
Buy (TP Bt11.10)
Stable and strong developer
Price Bt10.00
Although only 2.0% growth of norm. profit is expected in 2014, the bottom line should rise by 11.4% in 2015E on the back of GPM recovery and a 5.2% increase in transfers. Bt7.7bn presales backlog to be realized this year and 1Q14 transfers already secure 52.0% of 2014E transfers, implying relatively high revenue visibility for the low-rise specialist. We initiate coverage on LH with a Buy and an Bt11.10 TP (18.0x PER) on the back of highly secured transfers and potential upsides to earnings. Decent outlook on streams of CD completions Our 2014E norm. profit is only Bt6.6bn (+2.0%) as we expect revenue growth of 10.0% to be offset by lower norm. NPM (2013: 25.7% vs. 2014E: 23.9%). Nevertheless, the bottom line should increase by 11.4% to Bt7.3bn in 2015E on the back of GPM recovery and a 5.5% rise in revenue. Over half of 2014E transfers are secured Of the total backlog of Bt15.8bn as of 31 Mar 14, Bt7.7bn should be realized during the rest of 2014, implying that 52.0% of 2014E transfers are already secured. The majority of the revenue and earnings should be in 2H14 due to concentrated CD completions in 4Q14. Possible upside for CD transfers Our 2014E CD transfers of Bt4.7bn (+63.8%) are already 130% secured, so there’s some room for upside. Also, the potential sale of a shopping mall, Terminal 21, is not yet included in our model. A downside risk is higher-than-expected dilution from warrants. Initiate coverage with Buy We initiate coverage on LH with a Buy rating and a TP of Bt11.10. The TP is based on 2014E PER of 18.0x, +0.5 SD over the 2007-14 mean of forward PER. The premium over the historical average is given because 2014E-15E transfers are more secured than any past year thanks to successful CD launches during 2012-13.
FY Ended 31 Dec Norm. PER (x) EV/EBITDA (x) PBV (x) Dividend yield (%) ROE (%) Net gearing (%)
1M
3M
12M
1.52
4.16
-1.00
-2.70
-3.65
-8.24
Absolute Relative to SET Share data Reuters / Bloomberg
LH.BK/LH TB
Sector
Property Development
Paid-up Shares (m)
10,025.92
Par (Bt)
1.00
Market cap (Bt bn / US$ m)
100.00/3,103.00
Foreign limit / actual (%)
30.00/29.99
52 week High / Low (Bt)
12.40/7.90
Avg. daily T/O (shares 000)
22,924.00
NVDR (%)
18.15
Estimated free float (%)
52.14
Beta
1.67
URL
www.lh.co.th
Major Shareholders (06/05/2014) Mr. Anant Asavabhokhin
23.76 %
Thai NVDR Co., Ltd.
17.93 %
GIC Private Limited - C
16.11 % FY14
FY15
Consensus EPS (Bt)
0.620
0.687
KT ZMICO vs. consensus
3.2%
-2.5%
Company Profile
Financial and Valuation FY Ended 31 Dec Revenues (Btm) Net profit (Btm) Norm. profit (Btm) Norm. EPS (Bt) Norm. EPS growth (%) Dividend (Bt) BV (Bt)
Stock Performance (%)
2011
2012
2013
2014E
2015E
19,229 5,609
24,103 5,682
25,075 6,478
27,558 6,559
29,069 7,332
3,631
5,744
6,449
6,580
7,332
0.36 -3.4 0.40 2.93
0.57 58.2 0.45 3.14
0.64 12.3 0.40 3.35
0.64 -1.3 0.39 3.71
0.67 4.7 0.41 4.00
2012
2013
2014E
2015E
17.6 15.1 3.19 4.50 18.68 0.83
15.5 14.3 2.99 4.00 19.93 1.00
15.8 14.3 2.69 3.92 18.21 0.93
15.0 13.2 2.50 4.12 17.77 0.88
2011
17.9 15.5 3.41 4.00 19.71 0.87
The Company engages in the development of commercial buildings and residential housing. The Company develops detached houses, townhouses and condominiums in Bangkok and the surrounding areas. It also has projects in Chiang Mai, Nakhon Ratchasima, Khon Kaen and Phuket. CGR 2013
Wasu Mattanapotchanart Analyst, no. 44357 [email protected] 66 (0) 2624-6268
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 1 of 15
Valuation Initiate coverage with Buy We initiate coverage on LH with a Buy rating and a TP of Bt11.10. The TP is based on 2014E PER of 18.0x, +0.5 SD over the 2007-14 mean of forward PER. The premium over the historical average is given because 2014E-15E transfers are more secured than any past year thanks to successful CD launches during 2012-13. Figure 1: Implied 2014E PER for business units based on market prices
Residential + Rental Investments in associates Total
2014E Norm. PER 12.11 22.10 15.39
Held Market Cap 53,531 47,731 101,262
Shared 2014E Earnings 4,420 2,160 6,580
Source: LH, KT ZMICO Research Figure 2: PER Band and sensitivity of market prices based on PER at different standard deviation levels
Source: Bloomberg, KT ZMICO Research
Implied market price
Upside/Downside
PER (x)
(Bt)
(%)
+2.0SD
23.1
14.19
41.9
+1.0SD
19.6
12.08
20.8
+0.5SD
17.9
11.02
10.2
Average
16.2
9.96
-0.4
-0.5SD
14.5
8.91
-10.9
-1SD
12.8
7.85
-21.5
2014R norm. EPS = Bt0.62, based on expected number of shares at end-2014
Figure 3: PBV Band and sensitivity of market prices based on PBV at different standard deviation levels
PBV
Implied Market price
(x)
(Bt)
(%)
3.6
13.0
30.2
+1.0SD
3.0
10.9
9.3
+0.5SD
2.7
9.9
-1.2
+2.0SD
Source: Bloomberg, KT ZMICO Research
Upside/Downside
Average
2.5
8.8
-11.6
-0.5SD
2.2
7.8
-22.0
-1.0SD
1.9
6.8
-32.5
2014E BVPS = Bt3.60, based on expected number of shares at end-2014
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 2 of 15
Figure 4: Peer comparison Ticker
Price
TP
Rating
LH TB Equity
(Local) 10.00
11.10
PS TB Equity
27.75
24.10
SPALI TB Equity QH TB Equity LPN TB Equity SIRI TB Equity
21.60 3.40 19.30 2.10
22.60 3.74 18.20 1.62
Buy Sell Into Strength Buy Buy Sell Sell Sell Into Strength Buy Sell -
5.90
5.36
SC TB Equity PF TB Equity NOBLE TB Equity THAILAND'S AVERAGE
AP TB Equity
3.32 1.43 10.50
3.68 0.82 -
CAPL SP Equity CIT SP Equity KPLD SP Equity GUOL SP Equity WP SP Equity WINGT SP Equity HOBEE SP Equity SINGAPORE'S AVERAGE
3.17 10.42 3.4 2.15 1.775 1.96 2.24
SMRA IJ Equity CTRA IJ Equity DILD IJ Equity CTRS IJ Equity CTRP IJ Equity ELTY IJ Equity INDONESIA'S AVERAGE
1,220 1,040 474 2,315 720 50
KLCCSS MK Equity UEMS MK Equity SPSB MK Equity IGB MK Equity MSGB MK Equity MRC MK Equity MALAYSIA'S AVERAGE
6.41 2.08 2.94 2.71 2.29 1.61
600048 CH Equity 2007 HK Equity 3383 HK Equity CHINA'S AVERAGE
5.13 3.19 6.1
16 HK Equity 688 HK Equity 12 HK Equity 101 HK Equity 1109 HK Equity 83 HK Equity 813 HK Equity HONG KONG'S AVERAGE
106.9 20.3 46.4 23.8 14.94 12.78 14.72
Mkt Cap (US$m) 3,098
14E -2.0
15E 5.0
13A 15.5
14E 15.8
15E 15.0
Yield (%) 14E 3.9
13A 14.0
1,907 1,146 965 880 623
48.6
-2.0
25.1
10.8
11.0
8.8
4.1
21.2
5.1 96.9 8.2 -46.5
58.2 -7.8 0.2 2.8
9.6 16.1 35.4 46.5
12.9 9.6 12.7 9.5
8.2 10.9 12.7 9.2
7.5 9.4 9.3 6.3
4.9 4.1 4.0 7.1
30.3 16.3 23.2 16.2
Norm. EPS growth
Norm. PER (x)
ROE (%) 14E 18.2
521
-4.9
-4.6
16.7
8.5
8.9
7.7
3.7
13.1
381 256 148
-11.4 -92.2 8.7
40.0 2420 -17.8
0.7 -60.3 -48.1
11.8 299.5 14.8
8.2 11.9 15.6
8.1 29.9 30.0
4.9 3.2 3.4
13.7 7.9 7.1
40.6
11.2
13.2
4.3
16.7
15.2 13.0 5.8 57.1 50.6 3.0 2.4
19.9 15.0 12.9 15.4 20.6 9.9 24.3
18.0 13.7 11.6 11.3 14.9 8.1 17.9
2.5 1.3 2.9 n/a 3.4 3.8 2.1
4.7 7.8 5.8 n/a 4.0 5.2 2.8
21.0
16.9
13.6
2.7
5.0
10.2 11.6 10.1 6.5 8.8 n/a
15.4 13.1 11.7 8.6 12.4 n/a
13.7 10.8 8.8 6.9 8.0 n/a
2.0 1.9 1.4 3.8 3.0 n/a
23.3 17.9 9.5 22.4 8.8 n/a
9.2
11.5
8.6
2.5
14.7
20.0 17.7 17.1 18.0 10.5 n/a
17.3 16.8 14.8 16.4 10.3 41.3
16.6 16.1 11.2 15.5 8.7 27.3
5.2 1.9 4.1 2.4 4.0 1.1
8.8 8.7 8.6 5.2 16.4 5.3
16.7
19.5
15.9
3.1
8.8
5.5 7.8 4.3
4.1 4.6 3.6
3.4 3.8 3.2
4.9 7.8 7.9
20.9 21.0 14.1
5.9
4.1
3.5
6.9
18.7
6.6 7.7 7.4 15.2 7.6 5.5 6.5
13.4 7.2 15.7 18.9 7.7 15.6 4.6
14.6 6.0 15.6 16.5 6.1 14.9 3.9
3.1 2.7 2.1 3.2 3.5 3.9 6.6
5.5 19.3 3.9 4.5 12.8 4.4 18.8
8.3
11.6
10.5
3.7
10.6
10,791 7,574 4,201 2,034 1,698 1,231 1,195
1,489 1,334 416 388 375 184
3,588 2,927 2,295 1,122 1,015 824
8,820 7,596 2,740
37,581 21,406 17,772 13,771 11,239 9,920 6,594
-45.7 -1.5 16.6 -36.8 -63.4 21.0 227.3
33.0 64.1 82.4 45.3 40.0 n/a
14.3 27.9 -12.7 20.8 3.5 -272
28.0 22.3 -3.8
-15.7 20.0 23.7 -18.3 15.6 23.4 66.4
33.6 -3.7 -26.7 288.9 152.9 -47.2 -89.5
3.4 23.7 30.5 33.6 -16.9 n/a
-29.5 -6.8 10.6 9.3 3.3 152.7
25.1 18.7 0.5
13.0 22.3 -3.0 11.7 29.8 -26.8 21.0
10.7 9.4 11.8 35.7 38.4 22.7 35.9
12.6 21.6 32.6 24.3 53.7 n/a
4.0 4.0 32.8 6.1 18.0 51.3
20.8 21.5 11.4
-8.0 18.5 0.8 14.3 24.7 4.9 19.8
Source: Bloomberg, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 3 of 15
Earnings prospects CD transfers and residential GPM to dictate growth We expect revenue from project sales to grow by 10.9% in 2014 and 5.2% in 2015 thanks to rising CD completions and transfers. However, norm. profit should rise by only 2.0% in 2014 due to a declining residential GPM. The residential GPM should then rise from 34.9% in 2014E to 35.6% in 2015E when extra “indirect costs” will already be paid off (see “Financials” section for more on GPM trend), resulting in earnings growth of 11.4% in 2015E. Higher rent from US should offset lower hotel income in Thailand LH hinted that there would not be much growth in rental income this year as its hotels have been negatively impacted by the political stalemate and ongoing martial law. However, part of this should be offset by higher rent from its second apartment (USD104m) in San Francisco, California, US. LH bought the apartment in Sep 13, so 2014 will be the first year that it fully contributes rental income, causing LH’s overseas rent to rise from Bt92m in 2013 to around Bt200m in 2014E. As a result, we have 2014E rental and service income of Bt2.1bn (-1.2%). Figure 5: Transfers
Source: LH, KT ZMICO Research Figure 7: Rental income and service (2013 vs. 2014E)
Source: LH, KT ZMICO Research
Figure 6: Presales
Source: LH, KT ZMICO Research Figure 8: Revenue and norm. profit
Source: LH, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 4 of 15
Figure 9: CD transfers
Figure 10: CD completion in 2014 as of 31 Mar 14 Value Transfer Project (Btm) Sold starts The Key - Sathorn Rajapruk
1,790
100%
Feb-14
North 2 - Chiang Mai
160
90%
Mar-14
North 3 - Chiang Mai The Room - BTS Wongwienyai
160
74%
Jun-14
1,580
100%
Oct-14
North 5 - Chiang Mai
160
50%
Oct-14
2,700
55%
Nov-14
160
95%
Nov-14
780
60%
Dec-14
Wan-Way-La - Kao Tao North 4 - Chiang Mai Ease Rama II Total Source: LH, KT ZMICO Research
7,490
Source: LH, KT ZMICO Research
Backlog at record high after it penetrated CD market LH’s backlog is at a record high of Bt15.8bn, up from Bt14.8bn at end-2013 and Bt7.6bn at end-2012. This is in line with strong CD presales, which grew at the rates of 75.2% and 68.6% in 2012 and 2013, respectively, as most of LH’s CD launches were very successful. Figure 11: Contribution of backlog as of 31 Mar 14
Source: LH, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 5 of 15
Figure 12: % of annual transfers secured by backlog at the beginning of the year/period
Source: LH, KT ZMICO Research Figure 13: Project launches 2014
Source: LH, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 6 of 15
Financials Figure 14: Major assumptions 2011
2012
2013
2014E
2015E
18,580
22,305
22,939
25,448
26,768
13,702
16,435
18,330
19,000
19,950
TH
1,183
1,895
1,727
1,727
1,813
CD
3,695
3,975
2,882
4,721
5,005
649
1,797
2,136
2,109
2,300
19,229
24,103
25,075
27,558
29,069
12.3
20.0
2.8
10.9
5.2
9.0
19.9
11.5
3.7
5.0
TH
-29.8
60.2
-8.9
0.0
5.0
CD
61.1
7.6
-27.5
63.8
6.0
Rent
85.3
176.9
18.9
-1.2
9.1
Total
13.8
25.3
4.0
9.9
5.5
32.6
34.0
35.8
34.8
35.6
SDH
33.9
35.0
37.5
37.0
37.5
TH
28.6
30.6
31.8
31.8
31.8
CD
30.0
31.5
27.3
27.3
29.6
Rent
28.3
40.3
41.3
41.3
42.0
Total
32.5
34.5
36.2
35.3
36.1
Norm. NPM
18.9
23.8
25.7
23.9
25.2
Revenue Residential SDH
Rent Total Growth (%) Residential SDH
GPM (%) Residential
Source: LH, KT ZMICO Research
GPM to edge lower in 2014E due to some indirect costs We expect the residential GPM to decline from 35.8% in 2013 to 34.8% in 2014E before improving to 35.6% in 2015E. The expected fall in 2014 is due to the final sale of Nanthawan Srinakarin (> 1,200 units), which is around 20 years old. Before LH hands the project over to a property management firm, it has to repair all the utilities and infrastructure, which entails some “indirect costs” that LH normally books in the cost of goods sold. The cost of fixing this big project is expected to be Bt92m – Bt120m in 2014 (~0.4% of 2014E transfers). These indirect costs should be over within 2014, resulting in GPM improvement in 2015.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 7 of 15
Figure 15: Residential GPM
Source: LH, KT ZMICO Research
Figure 16: Operating margin
Source: LH, KT ZMICO Research
Associated companies expected to continue being major part of norm. profit QH and LH are the two developers with the highest amount of investments in other companies and rental assets. LH’s investment in associates contributed 32.7% of LH’s norm. profit in 2013, and the share should remain quite stable during the next two years. We expect 2014E share of profit from associates of Bt2.2bn (+2.4%); the rather low growth rate is due to the fact that most of HMPRO’s rise in profit is expected to be offset by QH’s decrease in earnings. Issuance of warrants to help keep leverage ratio low LH wants to remain financially conservative with a gearing ratio below 1.0x (1Q14: 1.06x); at the same time, it doesn’t want to forgo investment opportunities, and that’s why it distributed 1,998,184,856 warrants, namely LH-W3, to shareholders at the distribution ratio of 5 existing shares: 1 new warrant. Each of these warrants comes with an exercise price of Bt3.5 per share, and it will be valid until 5 May 2017. Figure 17: Share of profit from associates (normalized)
Figure 18: Investment in associates as of 25 Mar 14
as % of norm. profit
Source: LH, KT ZMICO Research
LH's Stake
Carrying amount (Btm)
LHBANK
34.1%
5,137
Q-CON
21.2%
420
HMPRO
30.2%
4,463
Asia Asset Advisory
40.0%
9
L&H Property Fund
49.9%
32
L&H Property and Loan Fund II
50.0%
537
QH
25.0%
5,180
Total investments Source: LH, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
15,778
page 8 of 15
Figure 19: Details of LH-W3 First day of trading # of warrants (million) Distributed to existing shareholders
Right of warrant holders
Exercise periods Expiration date Source: LH, KT ZMICO Research
Figure 20: Leverage ratios 2011 – 2015E 30-May-14 1998.2 5 existing shares: 1 warrant Each warrant could be exercised to purchase 1 share of LH at Bt3.5 per share Last working days of Mar, Jun, Sep and Dec 5-May-17 Source: LH, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 9 of 15
Industry outlook Presales outlook hinges on stability after the coup The impact of the coup on the property sector remains to be seen. If the situation remains relatively stable, i.e., the anti-coup demonstrations do not lead to violence, the direct impact on presales should be minimal. Transfers and earnings to be back-loaded Since completions of CDs are concentrated in the last seven months of the year, transfers of most developers should be quite back-loaded; in other words, 2H14 transfers should account for around 60.0% of the 2014E transfers. Increase in development costs to decelerate We don’t expect the problems of labor shortages and rising prices of construction materials to worsen in 2014. This is because the Bt2.2trn government budget for infrastructure investment was already ruled illegal by the Constitutional Court and a number of infrastructure projects have been delayed due to the lack of a fully functional government until the coup on 22 May 14. Land prices are also not expected to increase much. In fact, some developers reported that land prices have been flat so far this year due to the slowdown in the property market and economic growth in general. High household debt remains an obstacle We believe the record-high household-debt-to-GDP ratio of 82.3% will limit consumers’ purchasing power in 2014, resulting in an 11.5% decline in presales.
Figure 21: Household debt to GDP as of end-3Q13
Source: BoT, KT ZMICO Research
Figure 22: Sector’s presales growth
Source: Company data, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 10 of 15
Upside risk / Downside risk 2014E CD transfers already 130% secured 1Q14 CD transfers were Bt808m, and the CD backlog to be realized during the rest of 2014 is Bt5.3bn; these two numbers imply that our 2014E CD transfers of Bt4.7bn (+63.8%) are 130% secured. We are being conservative since most condo completions will occur in 4Q14; thus, delays from the planned transfers are possible. Nevertheless, we believe there is some upside to our projection; if LH can fully realize the CD backlog of Bt5.3bn during the rest of 2014, the TP would go up to Bt11.30 from the current TP of Bt11.10. Sale of shopping mall (Terminal 21) not yet included Last year, LH obtained the right to sell the shopping mall part of its 60%-owned Terminal 21 to a property fund. Its right will remain valid through 31 Dec 14. LH is looking for the right timing to sell the asset, saying that it will sell the mall only when the required dividend yield from the market is 7.0% or below. The shopping mall investment is worth around Bt3.0bn and the developer hopes to sell it for Bt6.0bn to a property fund, in which we expect LH to hold a 30.0% stake. Dilution from warrants When fully exercised, the new set of warrants will result in control dilution of 15.8%. We calculate our TP of Bt11.10 (18.0x 2014E PER) using the expected number of shares at the end of 2014, based on the assumption that only one-third of the warrants will be exercised this year. This means that a higher-than-expected amount of warrants being exercised would lead to a reduction of the TP.
Figure 23: Potential sale of Terminal 21 shopping mall
Figure 24: Exercise periods of warrants
(60% held by LH) Btm 5,000 6,000 1,000
Book value Selling price Gain on sale Realized gain on sale to LH*
300
*assuming LH will buy 30.0% of the property fund
Source: LH, KT ZMICO Research
Source: LH, KT ZMICO Research Figure 25: Scenario of dilution impact on TP Percentage of warrants exercised by end-2014
Dilution
33.3%
40.0%
50.0%
6.2%
7.4%
9.1%
10.9
10.7
11.10 TP Source: LH, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 11 of 15
Company Background Land and Houses (LH) is Thailand’s largest residential property developer in terms of market capitalization and the third largest in terms of 2013 revenue and presales. LH has a presence in the Bangkok Metropolitan Area, Chiang Mai, Chiang Rai, Khon Kaen, Nakhonratchasima, Udonthani, Hua Hin and Phuket. The company’s advantages lie in market expertise, superior quality, strong brand loyalty and a conservative financial approach.
Figure 26: 2013 presales by company
Source: Company data, KT ZMICO Research Figure 28: Revenue breakdown 2013
Source: LH, KT ZMICO Research
Figure 27: 2013 revenue by company
Source: Company data, KT ZMICO Research Figure 29: Presales and realized sales
Source: LH, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 12 of 15
Figure 30: Presales by segment 2013
Source: LH, KT ZMICO Research Figure 31: LH’s brands of property projects for sale
SDH Brand
TH
Price range (Btm)
Brand
Price range (Btm)
CD Brand
Price range (Btm)
Inizio
2.8 - 3.5
Indy
1.5 - 2.0
Ease
1.5 - 2.0
Villaggio
3.4 - 4.0
Villaggio
1.8 - 2.5
The Key
2.2 - 4.0
Chollada
3.5 - 5.0
Baan Mai
3.0 - 4.0
The Room
6.0 - 12.0
Mantana
5.5 - 15.0
Terrace
4.0 - 5.0
The Bangkok
10.0 - 25.0
Nantawan
16.0 - 30.0
Baan Wan Vayla
5.0 - 30.0
Ladawan
> 30.0
Source: LH, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 13 of 15
FINANCIAL TABLE PROFIT & LOSS (Btmn) Revenues Cost of sales and service Gross profit SG&A EBITDA Depreciation & amortization EBIT Interest expense Other income / exp. EBT Corporate tax Forex gain (loss) Extra Items Gain (loss) from affiliates Net profit Reported EPS Fully diluted EPS Core net profit Core EPS Dividend (Bt) BALANCE SHEET (Btmn) Cash and equivalents Accounts receivable Inventories PP&E-net Other assets Total assets ST debt & current portion Long-term debt Total liabilities Paid-up shares Shareholder equity Total liab. & shareholder equity
2011 19,229 (12,981) 6,248 (3,062) 7,586 351 7,236 (310) 53 6,979 (1,399)
2012 24,103 (15,792) 8,310 (3,518) 7,819 494 7,324 (488) 68 6,904 (1,119)
2013 25,075 (15,990) 9,085 (3,436) 8,768 509 8,259 (570) 93 7,782 (1,102)
2014E 27,558 (17,818) 9,739 (3,873) 8,949 500 8,449 (656) 78 7,871 (1,127)
2015E 29,069 (18,563) 10,505 (4,080) 9,887 500 9,387 (702) 82 8,767 (1,235)
2,611 1,156 5,609 0.56 0.56 3,631 0.36 0.40
(83) 2,285 5,682 0.57 0.57 5,744 0.57 0.45
37 2,109 6,478 0.65 0.65 6,449 0.64 0.40
(26) 2,160 6,559 0.63 0.55 6,580 0.64 0.39
0 2,508 7,332 0.67 0.61 7,332 0.67 0.41
2011 1,199 105 31,472 638 27,418 60,833 8,762 17,941 30,360 10,026 30,472 60,833
2012 1,462 120 32,537 651 30,271 65,040 7,319 20,163 32,438 10,026 32,603 65,040
2013 1,166 136 38,496 616 34,955 75,369 8,507 26,104 40,526 10,026 34,843 75,369
2014E 1,708 144 45,203 407 35,857 83,318 6,398 31,104 43,486 10,692 39,832 83,318
2015E 1,054 151 52,606 196 37,400 91,406 8,579 31,104 45,853 11,358 45,553 91,406
CASH FLOW (Btmn) Net income Forex and other extraordinary adjustments Depreciation & amortization Change in working capital Cash flow from operations Capex (Invest)/Divest Others Cash flow from investing Debt financing (repayment) Equity financing Dividend payment Others Cash flow from financing Net change in cash
2011 5,609
2012 5,682
2013 6,478
2014E 6,559
2015E 7,332
(2,477) 351 (14,541) (1,011) (358) 496 138 3,317 0 (3,487) 112 (59) (932)
388 494 (13,936) 5,008 156 729 885 (363) 0 (5,266) (0) (5,629) 263
220 509 (18,490) 662 (4,082) 1,215 (2,867) 5,921 0 (3,977) (0) 1,945 (297)
0 500 (22,990) (1,548) 50 829 879 2,891 2,331 (4,010) 0 1,212 542
0 500 (24,555) (2,030) 0 924 924 2,181 2,331 (4,060) 0 451 (654)
Free cash flow
(2,721)
3,663
(3,020)
(1,000)
(1,445)
(0.27)
0.37
(0.30)
(0.10)
(0.13)
2011 13.8 34.3 41.2 32.5 39.5 16.6 29.2 18.9 (24.2)
2012 25.3 3.1 1.3 34.5 32.4 19.9 23.6 23.8 (24.6)
2013 4.0 12.1 14.0 36.2 35.0 22.5 25.8 25.7 (19.7)
2014E 9.9 2.1 (2.0) 35.3 32.5 21.3 23.8 23.9 (20.0)
2015E 5.5 10.5 5.0 36.1 34.0 22.1 25.2 25.2 (20.0)
FCF per share (Bt) PROFITABILITY Revenue growth (%) EBITDA growth (%) EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%)
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 14 of 15
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS BUY: Expecting positive total returns of 15% or more over the next 12 months TRADING BUY: Expecting positive total returns of 10% or more over the next 3 months
SECTOR RECOMMENDATIONS OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months.
SELL INTO STRENGTH: Expecting total returns between -10% to +10% over the next 12 month; share price has largely priced in fundamentals
The industry, as defined by the NEUTRAL: analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months.
SELL: Expecting negative total returns of 10% or more over the next 12 months
UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 15 of 15
th
th
th
th
KT•ZMICO Securities Company Limited
st
8 , 15 -17 , 19 , 21 Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500 Telephone: (66-2) 695-5000
Phaholyothin Branch
rd
Fax. (66-2) 631-1709
Ploenchit Branch
th
nd
2
Sindhorn Branch
3 Floor, Shinnawatra Tower II,
8 Floor, Ton Son Tower,
1291/1 Phaholyothin Road,
900 Ploenchit Road, Lumpini,
Floor, Sindhorn Tower 1, 130-132 Wireless Road, Lumpini,
Phayathai, Bangkok 10400
Pathumwan, Bangkok 10330
Pathumwan, Bangkok 10330
Telephone: (66-2) 686-1500
Telephone: (66-2) 626-6000
Telephone: (66-2) 627-3550
Fax. (66-2) 686-1666
Fax. (66-2) 626-6111
Fax. (66-2) 627-3582, 627-3600
Nakhon Pathom Branch 1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
Chachoengsao Branch
Viphavadee Branch
Phitsanulok Branch
G Floor, Lao Peng Nguan 1 Bldg.,
Krung Thai Bank, Singhawat Branch
333 Soi Cheypuand, Viphavadee-Rangsit Road,
114 Singhawat Road,
Ladyao, Jatujak, Bangkok 10900
Muang, Phitsanulok 65000
Telephone: (66-2) 618-8500
Telephone: 083-490-2873
Fax. (66-2) 618-8569
th
Chonburi Branch
Pattaya Branch
108/34-36 Mahajakkrapad Road,
4 Floor, Forum Plaza Bldg.,
382/6-8 Moo 9, T. NongPrue,
T.Namuang, A.Muang,
870/52 Sukhumvit Road, T. Bangplasoy,
A. Banglamung, Cholburi 20260
Chachoengsao 24000
A. Muang, Cholburi 20000
Telephone: (038) 362-420-9
Telephone: (038) 813-088
Telephone: (038) 287-635
Fax. (038) 362-430
Fax. (038) 813-099
Fax. (038) 287-637
Khon Kaen Branch
5th Floor, Charoen Thani Princess Hotel,
Hat Yai Branch
Sriworajak Building Branch
200/301 Juldis Hatyai Plaza Floor 3,
1st – 2nd Floor, Sriworajak Building, 222
260 Srichan Road, T. Naimuang,
Niphat-Uthit 3 Rd,
Luang Road, Pomprab,
A. Muang, Khon Kaen 40000
Hatyai Songkhla 90110
Bankgok 10100
Telephone: (043) 389-171-193
Telephone: (074) 355-530-3
Telephone: (02) 689-3100
Fax. (043) 389-209
Fax: (074) 355-534
Fax. (02) 689-3199
Central World Branch
Chiang Mai Branch
Phuket Branch
999/9 The Offices at Central World,
422/49 Changklan Road, Changklan
22/61-63, Luang Por Wat Chalong Road,
16th Fl., Rama 1 Rd, Pathumwan,
Subdistrict, Amphoe Meuang,
Talat Yai, Mueang Phuket,
Bangkok 10330
Chiang Mai 50100
Phuket 83000
Telephone: (66-2) 673-5000,
Telephone: (053) 270-072
Tel. (076) 222-811,(076) 222-683
(66-2) 264-5888 Fax. (66-2) 264-5899
Fax: (053) 272-618
Fax. (076) 222-861
Pak Chong Branch
Cyber Branch @ North Nana
173 175, Mittapap Road,
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua Subdistrict , Wattana District, Bangkok 10110 Telephone: 083-490-2871
Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Tel. (044) 279-511 Fax. (044) 279-574
Nakhon Ratchasima Branch
Bangkhae Branch
6th Floor The Mall Group Building Bangkhae 275 Moo 1 Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Tel. (66-2) 454-9979 Fax. (66-2) 454-9970
624/9 Changphuek Road, . Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171 Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.
