LH is expected to report good presales growth in 2Q18 on the back of strong presales momentum in low-rise segment. LH’s voluntary tender offer by Mr. Anant and the purchase of LHPF share should act as a positive catalyst for share price. We expect strong earnings growth in 2Q18 on higher transfers, healthy gross margin level, and the record of one-off pre-tax gains from sale of its apartment project in the US. Maintain BUY. Target price: Bt13.30.

WHAT’S NEW

Expect good presales momentum to continue. Although Land and Houses’ (LH) presales in the high-rise segment is expected to be relatively low in 2Q18 as two newly condominium projects, The Room Sukhumvit 38 and The Room Phayathai, have had their launches delayed to 3Q18, overall presales in 2Q18 should see strong growth yoy and qoq on the back of strong presales in low-rise segment. We remain positive on LH’s presales outlook given that LH is a specialist in low-rise segment and has a more aggressive launch plan for 2018 compared with 2017. Looking forward into 3Q18, we expect condo presales to pick up from the launches of three new condo worth of Bt7.9b.

Tender offer to shareholder at Bt11.80. Mr Anant Asavabhokhin made a voluntary partial tender offer to purchase a total of 1,194m shares or equivalent to 10% LH’s total shares issued at Bt11.80/share. His share ownership in LH is expected to increase to 33.9% from 23.9% after the completion of this tender offer. Hence, we believe this transaction would act as a positive catalyst for share price given: a) the offer price is higher than the current market value, which signals that Mr Anant believes the company is currently undervalued and is optimistic about its future earnings growth, and b) the overhang caused by concerns regarding GIC’s shareholding reduction in LH could be removed. Note that GIC still holds around 8% of LH’s total share after selling 8% in 1Q18. This would be a good opportunity for GIC to sell the remaining share, in our view.

Buying more shares in LHPF. On 25 June, LH announced that it would be purchasing around 39m shares in Land and Houses Freehold and Leasehold Property Fund (LHPF) at a price of Bt7.80. This transaction is positive for LH as the price is below LHPF’s current market value at Bt8.25. Post-purchase, LH’s share ownership will increase from 15.00% to 26.96% of LHPF’s total paid-up capital. This should result in a slightly higher dividend income going forward.

STOCK IMPACT

Expect a boost in 2Q18 earnings growth. Given strong low-rise presales record in 1Q18, we expect LH to report a positive transfer figure in 2Q18. Meanwhile, gross margin is expect to remain healthy from the unusual adjustment for the 333 Riverside project as well as higher-margin product mix. The sale of a residential apartment in the US, The Domain, of around Bt1,317m before tax should further increase earnings growth for LH. We therefore expect strong earnings growth yoy and qoq in 2Q18.

EARNINGS REVISION/RISK

No earnings revision. We maintain our core earnings growth forecast of 15% for 2018. Nevertheless, we see potential upside to the street’s and our 2018 net profit forecasts on one-off gains from the sale of The Domain in California in 2Q18.

VALUATION/RECOMMENDATION

Maintain BUY and target price of Bt13.30. We re-iterate our positive view on LH, given its strong operating outlook and positive momentum. We believe LH’s strong earnings growth outlook will be supported by its strong performance in high-end and low-rise segment. Our SOTP target price values: a) the property business at Bt7.04/share, or 14.4x 2018F PE, which is 0.5SD to the segment’s historical PE, and b) affiliates (LHFG, Q-CON, HMPRO, QH) and long-term investments (LHPF II and other properties) at market value and equity value, totalling Bt6.26/share.

SHARE PRICE CATALYST

Better-than-expected presales, unit transfers, and gross margin.

Source: UOB Kay Hian Research - 2 Jul 2018