LPN's stock on top pick

According to 21 brokerage houses that updated their research papers about the stock this month, 12 recommended buy, 6 recommended hold and 3 recommended sell. The stock's target price for brokers recommending buy is in a range of Bt2.91-Bt5.40 each.

The company develops condominiums, with five brands covering middle to lowincome earners. Lumpini Suisse targets upper middle income earners or B+, Lumpini Place targets upper middle to middle income earners or B to B+, Lumpini Ville targets middle to lowermiddle income earners or B to B, Lumpini Centre targets lower middle to upper lowincome earners or B to C+ and Lumpini Condotown targets lowincome earners (C+).

LPN targets presales growth of 10 per cent to Bt10 billion this year, with plans to launch six to eight new projects worth a total of Bt11 billionBt12 billion. Three of these projects will be extensions of existing projects: Place PrachachuenPongpetch, Ville RamIndraLaksi and Place Rama 9Ratchada.

It will also speed up sales of finished stock and remaining condo units in order to reduce risk from excessive inventory, which now stands around Bt650 million.

LPN currently has a presales backlog worth Bt8.5 billion carried over from last year. Of this total, Bt6.5 billion will be recognised as revenue this year and the remaining Bt2 billion will be recognised in 2010.

The property developer delivered almost 30 per cent yearonyear growth in its 2008 earnings, from Bt927.74 million in the previous year to Bt1.21 billion. Its net profit has increased steadily from Bt588.38 million in 2005 to Bt765.23 million in 2006.

Phillip Securities (Thailand) has recommended buying LPN stock with a 12month target price of Bt3.40.

"Valuation is low in line with the weakening profit outlook for 2009, but dividend yield remains too high to ignore," the broker said.

LPN declared its secondhalf dividend of Bt0.27 per share, accounting for dividend yield of 9-10 per cent.

Given a development period of one to two years, the level of revenue depends on the size of the backlog. Currently, LPN has a backlog of about Bt9 billion, of which Bt6.8 bil¬lion will be realised as revenue this year, accounting for 97 per cent of the broker's 2009 revenue estimate.

Based on an assumption that LPN's margins will fall from 31 per cent for 2008 to 2930 per cent this year, Phillip Securities estimates that LPN's 2009 net profit will drop by 17 per cent to Bt992 million, or Bt0.67 per share.

It also expects LPN to pay a 2009 dividend of Bt0.34 per share, equivalent to a yield of roughly 1213 per cent.

LPN's expected rise in debttoequity (D/E) ratio to 1.06 times from 0.86 times in the final quarter last year is also not too high to be managed, the broker said.

"Despite a virtually no profitgrowth outlook, we believe the current P/E level of below 4 times and the estimated dividend yield of 10 per cent and 13 per cent for the second half of 2008 and 2009 respectively still reflect limited downside to the stock," the broker said.

Kim Eng Securities (Thailand) has upgraded its recommendation for LPN's stock from buy on weakness to accumulate with a fair value of Bt3.62 million.

With much of the current backlog to be realised as revenue this year, the broker estimates LPN's earnings to decline only 8 per cent this year to Bt1.11 billion, or Bt0.75 per share.

However, if presales keep slowing further, earnings will fall substantially in 2010, as there will only be Bt2 billion of the remaining backlog to be recognised in 2010.

Despite LPN's presales target of Bt10 billion in 2009 to be driven by the inauguration of six to eight new projects, the broker still believes that LPN's presales this year will fall by 20 per cent to Bt7.2 billion due to the grim economic situation.

Given the economic slowdown, commercial banks have tended to adopt stricter loanapproval policies. LPN accordingly withdrew cash for sufficient working capital for project development throughout this year.

The company's outstanding debts have increased to Bt2.60 billion as of the end of 2008 from Bt1.82 billion last quarter, with cash and shortterm investments rising Bt1.69 billion. Gearing rose to 0.58 times from 0.43 times last quarter.

However, the net gearing remains flat quarteronquarter at 0.20 times. LPN should have no liquidity problems given the sizeable cash on hand and its good credit lines.

Moreover, the company will receive a sizeable cash inflow from the transfers of the condominium backlog, worth Bt8.5 billion.

LPN's customer target range in the low to middleincome segments have been severely hit by the economic slowdown.