LPN - 3Q24: Net profit down YoY and QoQ

LPN reported 3Q24 net profit of Bt46mn (-55.6% YoY and -52.2% QoQ), pulled down by a lower gross margin brought by sale of inventory and massive losses from an affiliate. 9M24 net profit was Bt226mn (-32.7%). We expect 4Q24F net profit to recover both YoY and QoQ off a low base and continued backlog recognition. However, as it continues to sell off inventory, especially low-rise, we lower our projected gross margin for 2024 and 2025, which gives a new forecast for 2024 of a net profit drop of 15.9%, followed by small 2% growth in 2025. Our Tactical call remains Underperform, rolling TP rolled to 2025 to Bt2.3/sh based on PE of 11x.

3Q24 net profit sank 55.6%YoY and 52.2%QoQ. LPN reported 3Q24 net profit of Bt46mn (-55.6% YoY and -52.2% QoQ), 39% below consensus on lower gross margin and losses from affiliates. Revenue was Bt2.1bn (+9.9% YoY but -7.6% QoQ), backed by new transfers at Lumpini Ville Charan Faichai (project value Bt3.2bn, 34% sold with 14% transferred in 3Q24). Average gross margin was 18.5%, pulled down by a real estate gross margin of 17.5%, narrowed by the sale of inventory and promotions. Losses from an affiliate in the rental business worsened to Bt22mn. This brought 9M24 net profit to Bt226mn (-32.7%).

Downgrade 2024 and 2025. LPN has backlog of Bt2.23bn with 41% or Bt900mn to be booked in 2Q24; the remaining Bt1.34bn will be booked in 2025-2027. In 4Q24, LPN will book the remaining backlog at Lumpini Ville Charan Faichai with promotions to encourage sale of inventory, which we expect will eat into gross margin. We thus lowered our 2024 gross margin projection to 20% from 21%, which brought our net profit forecast down by 7% to Bt297mn (-15.9%). In 2025, LPN has backlog of Bt500mn, with one condo scheduled for completion, EARN by LPN (project value Bt2.1bn, take-up rate 17%). LPN continues to work on selling off inventory of both condos and low-rise, which narrows our gross margin projection to 20.7% from 21.9%. Our revised 2025F net profit is Bt303mn (+2%), 28% below earlier forecast.

9M24 presales at 63% of target. In 9M24. LPN launched four new projects with total value of Bt4.19bn (one condo, three low-rise). It plans no new launch in 4Q24. Total presales came to Bt6.89bn, 63% of its 2024 presales target of Bt1.1bn (+10%), which already includes a big lot sale of Bt570mn at Lumpini Place Rama 3 - Riverine condo to a major buyer. We believe LPN will miss its presales target by ~15% to ~Bt9bn.

ESG key risk: Operational risk: 1) Inventory management: four projects under construction with total value of Bt7.3bn have an average take-up rate of 20-25% plus current inventory of Bt24bn raises concern of a lower gross margin from sale of inventory. 2) Rejections and cancellations in mid-low and low segments remain high. ESG key risks: LPN is not included in SET ESG ratings.