Supalai

Supali Plc (SPALI)
 
Taking our cue from the company’s preview, we estimate that SPALI will report a 2Q12 net profit of THB290m, up 10% qoq but down 65% yoy and taking 1H12 net profit to only 17% of our FY12 forecast. FY13 remains challenging given the weak backlog and margin downside. As we expect a rebound in 2H12, we keep our EPS numbers. But we cut SPALI from Neutral to Underperform given its 9x P/E (2SD above 5.0x historical average), FY12 earnings downside and challenging outlook. We continue to value it at 7.5x CY13 P/E, within 1.5SD above the 5-year average in view of its strong finances and dominance in rural areas. 

What Happened
At its 2Q12 preview meeting, SPALI guided for 2Q12 sales of THB1.65bn (-58% yoy, +10% qoq), of which THB202m (+109% qoq) was from rural subsidiaries. If not for the subsidiaries, 2Q12 sales would have been flat qoq. The soft sales mainly resulted from limited condo transfers and slower-than-expected SDH/TH sales. The backlog as at 1H12 was THB27.8bn. 2Q12 gross margin was c.
40%, dragged down by a higher portion of lower-margin SDH/TH transfers. The SG&A ratio stayed relatively high at 16.2% of sales vs. 18.7% in 1Q12 (10.3% in 2Q11). SPALI also flagged lower gross margins for the backlog in FY13-14 (50% of FY13 backlog and 23% of FY14 backlog will

be affected) as some backlog have not factored in the rise in the minimum wage.

What We Think
We expect 2Q12 net profit to come in at THB290m (+10% qoq, -65% yoy), taking 1H12 to 17% of our full-year forecast (Figure 1). Depending on the 3Q12 transfer momentum and gross
margin, we may revisit our EPS forecasts. We remain cautious on the FY13 topline as the backlog is only 43% of our FY13 revenue forecast, instead of the c. 50% we would expect for developers with a product mix split equally between SDH/TH and condos. SPALI’s rising reliance on rural growth amid rising competition is another concern.

What You Should Do
Take profit and switch to PS, SIRI or AP for more upside potential. SPALI’s market positioning does not bode well for rerating beyond 2SD above the mean. Its first-mover advantage in
Thailand’s upcountry is being challenged by its peers, especially listed rivals.