Supalai Plc

Supalai Plc (SPALI)

Below our model: SPALI reported a net profit of Bt264m for 1Q12, down by 64% YoY and 24% QoQ, The result was 14% below our estimate, due to higher-than-expected SG&A expenses. It was, however, in line with the consensus. 
Results highlights: The poor 1Q12 profit was due to a housing sales contraction, down by 53% YoY and 36% QoQ to Bt1.5bn (60% low-rise; 40% condo)—no new condo started transferring in 1Q12. Housing GM dropped from 43.9% in 1Q11 to 42.5% in 1Q12 due to a lower condo revenue contribution (condos yield a fatter GM than low-rise). Note that condo sales comprised 71% of the 1Q11 top-line. The SG&A/sales ratio increased by 9.3% YoY and 6.6% QoQ to 18.5% because of lower sales. The balance sheet remained strong with a low net gearing ratio of 0.43x at end-March. 
Outlook: 2Q12 profit is expected to weaken YoY but rise QoQ (driven by low-rise sales). We anticipate that 2H12 earnings will account for almost 80% of the FY12 bottom-line. Two condos—SPALI Park Asoke-Ratchada (Bt1.4bn; 99% booked) and City Home Srinakarin (Bt1bn; 17% booked)—will start transferring in 3Q12. Two more condos, Park Ratchayothin (Bt2.3bn; 97% booked) and Park@Downtown Phuket (Bt806m; 9% booked) will transfer in 4Q12.
What’s changed? 1Q12 profit represents 9% of our full-year forecast and the consensus. We maintain our model unchanged, as SPALI’s presales backlog secures 73% of our FY12 revenue projection, 36% of FY13 and 37% of FY14.
Recommendation: Weak 1H12 numbers will be followed by hefty profits in 2H12, driven by condo transference—earnings visibility is clear. Thus, we maintain our TRADING BUY rating with a YE12 target price of Bt18, pegged to a PER to 10x, 2SDs above SPALI’s FY05-11 mean.