Quality Houses

 

Event

- We raise our EPS estimates for QH by 2-11% for 2012-14 to factor in stronger-than-expected presales from the low-end housing segment. After past disappointments for QH's value investors, we see this news as a turning point when they can start to enjoy an upturn in momentum. We roll over our valuation to end-2013 to Bt2.40 (from Bt2.30) and maintain our Outperform rating. 

Impact

- 8M12 presales rose 28% YoY to Bt11.9bn, of which Bt5.5bn was from low rises and Bt6.4bn from condos. This represents 75% of QH’s full-year target of Bt15.8bn. Presale momentum from landed properties showed a strong improvement in May, June and July with average monthly presales of Bt1bn, compared to the monthly average of just Bt410m in the second quarter. 

- To realise gains from asset sales in 3Q12. In 2Q12, QH sold three serviced apartments to its newly listed property fund, Quality House Hotels and Residences (QHHR TB, Bt10.40, NR). The total fund size is Bt3.3bn. 

expects to realise gains after tax of Bt700m to Bt750m in 3Q12. Gross yield for this property fund is 7.4% and net yield is at 6.0% due to its leasehold structure, with a guaranteed yield of 7.0% for the next three years.

- 2H12 to launch 18 new projects of Bt23bn. This will include eight SDHs (Bt11.7bn), five THs (Bt3.1bn), and five condos (Bt8.2bn). Of these 18 projects in 2H12, four will be upcountry, including a high-end SDH in Chiang Mai (Bt300m and 37 units) and three upcountry condos, in Hua Hin, South Pattaya and Nakorn Patom. QH is aiming for its upcountry portion to reach 7-8% by end-2012 and 10-15% by end-2013, up from 6-7% currently.

- 44% and 16% of revenues secured for 2012-13E. At end-2Q12, QH had a total backlog of Bt8.5bn, of which Bt1.2bn was from low rises and Bt7.3bn from condos. Of that, Bt3.5bn will be realised as revenue for 2012, Bt3b.2n in 2013 and Bt1.8bn in 2014. This means our revenue forecasts for QH are already secured by 41%, 16% and 10%, respectively for 2012-14E.

Earnings and target price revision

- We raise EPS estimates 2-11% for 2012-14 to reflect the better-than-expected presales. We roll over our valuation to end-2013 to Bt2.40 from Bt2.30. 

Price catalyst

- 12-month price target: Bt2.40 based on a DCF methodology.

- Catalyst: Improving presales, no transfer delay and better gross margin. 

Action and recommendation

- Maintain OP with a new TP of Bt2.40 (from Bt2.30). QH is trading at a negative core 2013E PER and 2013E normalised PER of 9.4x, vs its LT mean of 10.7x. Despite the negative valuation of its core operating assets, the company is starting to show real improvement and we advise investors to add to positions. Our TP of Bt2.40 implies a normalised 2013E PER of 12.3x.