Quality Houses

Quality Houses Plc (QH)

Investment thesis: We have upgraded our rating to TRADING BUY from HOLD and upped our YE12 target price to Bt2.12 from Bt1.70 (sum-of-the-parts; target housing PER of 6.6x, 1SD below its FY06-11 mean, plus Bt2.10/share of rental assets and investments). Our upgrade is due to a profit forecast upgrade prompted by surprisingly good 1Q12 presales and speculation that asset monetization in 2H12 could possibly double our current FY12 EPS projection. Valuation downside risk is low, as the stock trades at 13% below the breakup value of its assets.
Earnings upgrade: We have revised up our core profit forecasts by 10% for FY12 and another 3% for FY13 to reflect better-than-expected 1Q12 sales. Our FY12 housing revenue assumption rises 8% to Bt11bn (but is still far below QH’s target of Bt12bn). The current backlog secures 27% of our FY12 top-line forecast.
Positive surprise—YoY 1Q12 presales growth: QH is likely to post 1Q12 presales of Bt3.3bn (about 90% low-rise), growth of 5% YoY and 79% QoQ. The expected good 1Q12 numbers are driven by impressive low-rise presales (up by 15% YoY and 345% QoQ). The top-line is leading YoY and QoQ 1Q12 profit growth. In 2Q12, presales should be sustained QoQ, led by the launches of Gusto, a new low-end TH brand (presales model), and perhaps three new condos (at Thapra, Pattaya and Sukhumvit Soi 79).
Good GM signal: We see scope for housing GM upside to our model (we conservatively assume flat YoY GM of 28.2%), as the contributions of five very low GM projects from FY11 will decline (sales have finished at Casa City Sukhumvit 101 and 30-40% is for sale at two other Casa projects on Ratchapruek Road and Casa Ville Bangna-Suvarnabhumi). There should be further GM upside from higher condo revenue contributions (GM of at least 30%)—condos will comprise 27% of the top-line in FY12 versus 13% in FY11. With regard to projects in areas flooded in 4Q11, the firm has increased sales prices by 1-3% ahead of an expected demand recovery in 2H12.
Huge gains from asset monetization: QH intends to divest some or all of its five serviced apartment buildings (Centre Point Petchburi, Sukhumvit, Langsuan, Silom and Saladaeng). Asset monetization (probably sales to a property fund) could possibly go ahead in 2H12. If the assets were sold to a property fund, we would estimate a Bt921m net gain, equal to Bt0.10/share, which would double the FY12 bottom-line.