Asian Property

Asian Property Plc (AP)

Beat all estimates: AP posted a 2Q12 net profit of Bt573m, up by 21% YoY and 28% QoQ.  The result was 15% above our estimate and 19% ahead of the street, due to an unexpected tax saving of Bt83m from the loss carried forward from Rhythm Ratchada condo; developed by joint venture partner, Pacific Star (AP bought the 49% it didn’t already own two years ago at a premium price)—the tax saving was in 2Q12 because the JV firm was dissolved in April 2012. Excluding a Bt35m gain from selling PREB shares (reduced stake from 15% to 9%) in 2Q12, core profit was Bt541m, up by 16% YoY and 30% QoQ. 
Results highlights: The strong YoY profit growth was driven by an effective tax rate plunge from 34% in 2Q11 to 12% in 2Q12. The one-time tax saving outweighed the effect of a 5% YoY residential sales contraction and slimmer housing GM (from 36.8% in 2Q11 to 33.6%). On a QoQ basis, earnings growth was boosted by a 22% rise in residential sales (The Address Asoke started transferring). Housing GM dipped from 35.1% in 1Q12 to 33.6%, due to a diminished proportion of condo sales in the revenue mix—housing revenue comprised 59% low-rise and 41% condo. The net gearing ratio dipped to 1.15x at end-June from 1.21x at end-March. 
Outlook: We expect 3Q12 profit to slip YoY, as 3Q11 was AP’s best quarter of that year for revenue and profit. GM will decline YoY, due to high GM of 37% from Baan Klang Krung Rama III, which transferred in 3Q11. On a QoQ basis, we expect a flat core profit, due to the one-time tax saving in 2Q12. The Address Sathorn 12 (Bt4.1bn; 89% booked) will start transferring in 3Q12.
What’s changed? We have revised up our profit forecasts by 8% for FY12 and 5% for FY13 to reflect the surprisingly good 2Q12 number. 1H12 net profit comprises 49% of our new FY12 model. The record backlog of B30bn at end-June secures 95% of our FY12 revenue forecast, 52% of FY13 and 30% in FY14.
Recommendation:  Our BUY call stands, premised on clear long-term revenue visibility. Our upgraded YE12 target price is Bt8.60 (up from Bt8.20), which factors in our earnings revisions (target housing PER of 12x and Bt0.03/share of investment value in PREB). We advise looking past weak 3Q12 numbers (a YoY dip for AP against growth for the sector).