Pruksa Real Estate

Pruksa Real Estate Plc (PS)

An interview with PS suggests that 2Q12 results may beat market expectations.
We estimate a net profit of THB1.1bn (consensus THB904m).
Our bullish FY12 sales forecast is now more than 100% backed by backlog.
FY13 outlook is even brighter. We raise FY12-14 EPS by 2.6-10.5% on a
faster-than-expected recovery and better FY13 visibility.
 Our target price rises by 23%, now at 10x CY13 P/E (previously 9x CY13 P/E),
+1 SD above its 5-year average to reward it for its improving FY13 prospects
and sustained TH market leadership (50% market share). Reiterate Outperform.

What Happened
A recent interview with top management suggests that 2Q12 results may beat market expectations. We expect a 2Q12 EPS of THB0.50 and net profit of THB1.1bn (+75%
qoq, +13% yoy), 21.6% above consensus, led by a strong recovery in sales, sustained gross margins of around 35% and more effective expense control. If we are right, 1H12 net profit will form 44% of our FY12 estimate. Previously, we had thought that 1H12 would account for only
35% but apparently, the recovery has come faster than expected. Management also guides for stronger profitability in FY13, thanks to PS’s substantial condo backlog of THB9.5bn (one-third of its FY13 sales target), which carries gross margins as high as 40% and net margins close to 19%.
What We Think
We strongly believe that PS deserves further re-rating given its focus on turning around from the 4Q11 flood crisis, in which it was the worst hit in our property universe. Also, PS’s recovery without gross-margin destruction (sustained at 35%) and improving net margins (expected 16.3% in 2Q12 from 13.6% in 1Q12 and 14.6% in 2Q11) fairly justify a re-rating, in our view. Apart from
potential upside in FY12 EPS, we expect an even brighter FY13 with 37% earnings growth forecast (vs. an expected 39% in FY12). Market upgrades are highly likely after 2Q12
results on 9 Aug.
What You Should Do
This is a fearless BUY, in our opinion, at 7.4x CY13 P/E vs. its 5-year average of 9.2x and a peer average of 10x.
2Q12 preview
We expect a 2Q12 EPS of THB0.50 and net profit of THB1.1bn (+75% qoq, +13% yoy), 21.6% above consensus, thanks to a strong recovery in sales (still mainly driven by TH/SDH), sustained gross margins of around 35% and more effective expense control. SG&A to sales (inc. business tax) could be lower at 14.8% due to a possible reclassification of cost and expense allocation from
SG&A to cost of sales. If our forecasts materialise, 1H12 net profit will form 44% of our FY12 estimate (previously thought to be 35%).
EPS upgrade
Based on our new findings (faster-than-expected recovery in 2Q12, stronger backlog, wider gross margins especially for FY13 backlog), we raise our FY12-14 EPS estimates by 2.6-10.5%. A condo backlog worth THB9.5bn pending transfers in FY13 could offer gross margins as high as 40% vs. PS’s normal average margin of 35%. As such, we expect earnings growth of 37% in FY13,
following our estimate of +39% in FY12 (-19% in FY11).