Quality Houses

Quality Houses Plc (QH)
 

Above all estimates: QH reported a 1Q12 core profit of Bt304m, up by 93% YoY and 521% QoQ. Core earnings were far above our estimate (about Bt200m), and 29% ahead of the consensus because housing GM beat our model and due to a lower-than-expected SG&A/sales ratio. Net profit was Bt270m, growth of 71% YoY and 154% QoQ. Note that QH booked a Bt34m marked-to-market loss of available-for-sale investments for 1Q12 (versus a gain of Bt58m for 4Q11).
Results highlights: The impressive 1Q12 profit was due to housing sales expansion (Bt2.1bn, up by 10% YoY and 40% QoQ). The YoY condo revenue growth was driven by Q.Langsuan sales. The housing income breakdown for the quarter was 78% low-rise and 22% condo. Housing GM jumped from 26.8% in 1Q11 to 29.6% in 1Q12 (29.0% in 4Q11). The SG&A/sales ratio dropped by 2.3% YoY and 19.3% QoQ to 21.5% (in 4Q11, QH booked Bt150m in flood protection costs, but only Bt30m in 1Q12). Equity income from affiliates—HMPRO, LHBANK and QHPF— jumped 38% YoY. The net gearing ratio dropped to 1.6x at end-March from 1.7x at YE11.
Outlook: We expect both QoQ and YoY core profit expansion in 2Q12, driven by a housing sales recovery. Moreover, gains from asset sales to a property fund will boost the bottom-line in either 2Q12 or 3Q12.
What’s changed? We have upgraded our model (see details in our QH Singapore NDR report, also issued today). 1Q12 profit represents 23% of our revised up FY12 core profit forecast (21% of the consensus). QH’s end-March presales backlog of Bt5.5bn secures 29% of our FY12 revenue projection and 17% of FY13.
Recommendation: We have upgraded our rating to BUY (from TRADING BUY) with an increased YE12 target price of Bt2.20, based on a sum-of-the-parts valuation—a target housing PER of 6.6x (1SD below its FY05-11 average) and Bt1.85/share of investment and rental asset value. A short-term catalyst will be a huge gain (Bt1bn or Bt0.11/share) on the sale of three serviced apartment buildings to a property fund by July 2012. We expect QH to post solid core profit growth of 72% for FY12 and net profit growth of 159%. The stock trades at an FY12 PER of 6.7x, about 1SD below its FY05-11 mean.