LPN: 4QFY17 profit in line with forecasts February 15, 2018

  • 4QFY17 profit in line with forecasts: LPN reported a 4QFY17 profit of Bt296mn, which nearly matched our forecast of Bt283mn but fell short of market consensus. The quarterly profit grew a meager 4% y‐y as revenue growth of 7% y‐y was tempered by margin contraction as a result of further price discounts to speed up sales of outstanding condo inventories and higher SG&A expenses.
  • Earnings recovery just around the corner but much hinges on its first SDH/TH project: Even though we expect LPN to return to profit growth of 38% this year helped by further revenue expansion and better margins, uncertainty over whether its new SDH/TH project will score a success given that it is still new to this market segment may pose a risk to the earnings outlook this year. Slow momentum in sales of outstanding condo inventories has prompted LPN to make its first foray into SDH/TH market to drive growth. For FY18, revenue growth is expected to accelerate to 18% based on assumptions that LPN has a backlog of only Bt5.8bn carried over into FY18 and the rest should come from sales of outstanding condo inventories and revenue of around Bt1bn from its new SDH/TH project. Margins are also likely to improve on less discounts in efforts to bring down inventory levels.
  • ‘SELL’ rating unchanged with FY18 target price of Bt9/share: Based on FY18 EPS forecast of Bt1/share, LPN is currently trading at a P/E of nearly 11x, a big premium to its historical average of 9x. Given uncertainty over its earnings recovery story, we think LPN does not deserve such a premium valuation. At the end of the day, we repeat our ‘SELL’ rating on LPN with a FY18 target price of Bt9/share.

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