Target price : Bt3.00
Recommendation : BUY
Closing Price (2 March 09) : Bt2.58
Lower-than-expected profit 4Q08 on weak presales
- 4Q08 profit rose 2% YoY declined 9% QoQ
- Despite better presales momentum from 4Q08, we see SDH/TH presales 2009 to decline by 12%. Coupled with revenue from condo
projects, we see total sales realized to dip 7%. Given lower margin and minimal decline in SG&A expenses, pre-extra profit 2009 would drop by 11%
- Given its low P/E and PBV, LH is trading marginally below our break-up value. So we put Accumulate on the stock with fair value of Bt3.
Profit 4Q08 rose 2% YoY but declined by 9% QoQ
LH reported profit Bt774m, up 2% YoY but down 9% QoQ. Sales realized dropped by 2% QoQ and 4% YoY as presales 4Q08 was extraordinarily low at Bt1.8b relative to Bt3.5b and Bt4.1b in 3Q08 and 4Q07.
However, the success in presales on 3 condo projects brought presales condo at Bt1.4b. However, sales realized 4Q08 was a mere Bt3.3b from SDH/TH of Bt2b and Bt1b from those condos. (See associated table regarding condo projects status) The remaining Bt300m was from sales of land plot at Phuket at no gain. Meanwhile, margin improved from 3Q08 and 4Q07 to 34% mainly from hefty margin on condo projects around 42-44%. SG&A expenses stabilized QoQ and dipped YoY while equity income retreated 8% QoQ but exceeded 4Q07's. On the extra item, there was impairment set aside for land plot and asset of Bt66m. Hence, net profit came out less than Bt800m. Should we subtract that extra items, pre-extra profit would be Bt841m. 4Q08 profit came up short to our expectation on the back of slide in SDH/TH presales.
Presales 2M09 appeared to improve but we still see revenue to dip 7%. With lower margin, pre-extra profit 2009 is set to decline by 11%
Management has a positive view on improving presales Ytd as presales started to recover from Dec08 of Bt700-800m due to negative economic and political factors. After the political situation relieved, presales in Jan looked resilient on stable growth from Dec 08 and presales Feb 09 would recover further in the view of management. We see Feb 09 to reach Bt1b. LH still see demand to grab. With its project portfolio to focus on Bt5-7m per unit, its target may not sensitive greatly to economic. LH hence set an official revenue target for 2009 at Bt15b, at par to 2008's with positive view on recent presales momentum. However, presale in Jan 09 of Bt800m was down from Jan 08's by 20%. Our expected presales in Feb 09 at Bt1b would be lower than high base presales in Feb 08 of Bt1.7b. With high base on 1Q08 and 2Q08 presales at Bt4.4b and Bt4.1b and current fragile economic, we see recovery to be gradual one. So we projected SDH/TH presales 2009 to decline by 12% and SDH/TH sales realized at Bt12b down from Bt14b. The other side would be from 3 condo projects by Bt2.1b. While the room Ratchada has presales to date of 17%, pre-booking has been high at 70% so we expect sales recognition from this project around 60%. Meanwhile, the other two projects would be fully transferred in 2009 given its good pace sales. With this respect, total sales realized would be at Bt14.4b down 7% YoY. Although margin condo is quite high, its revenue portion of a mere 15% would not suffice to lift total margin to be greater than 2008's. Along with weak equity income, we see pre-extra profit and net profit to dip by 11% and 8% with expected dividend of Bt0.20 or 8% yield. This new projection has been cut by 9% from previous one to reflect weaker-than-expected presales during late last year to the beginning of this year.
Share Valuation
P/E of 8x and PBV of 0.90x and discount to break-up value of Bt3.00 reflects cheap valuation. With better presales momentum, current share have already reflected weak performance and negative profit growth. With minimal upside, we recommend Accumulate.
By Phillip Securities (Thailand) Plc. on Mar 3, 2009
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