Supalai

Supalai Plc (SPALI)

Investment thesis: Last week, we accompanied, Mr Tritecha Tangmatitham, an executive director of SPALI, on a roadshow to Singapore where we met with the managers of 15 funds (23 individuals). The fund managers were positive about SPALI’s strategy for sustaining long-term growth with a high margin and its clean balance sheet. Furthermore, the firm’s leadership in the provinces will augment earnings growth upside over the long-term.
SPALI is one of our top picks in the sector. The firm will post both YoY and QoQ profit growth for 3Q12 (earnings slipped YoY in 1Q-2Q12) and a record high bottom-line for 4Q12. Its FY13 PER is an inexpensive 9.6x, below the 11.3x sector mean.
Comfortable presales growth of 15% per year: FY12 Presales will hit a record high of Bt21bn (up 32%). SPALI launched Supalai Vista@Tiwanon (Btt1.4bn) in late Sept with a 95% take-up rate. The long-term presales growth target is 15% per year.
Sweet spot of FY14 revenue: Mr Tritecha conservatively targets annual revenue growth of 10% for FY12-13. Then, he expects an FY14 top-line surge of at least 20%, boosted by condo transference. The backlog at end-June hit an all-time high of Bt28bn, to transfer in 2H12 through FY15—Bt7.2bn in 2H12, Bt6.0bn in FY13, Bt8.7bn in FY14 and Bt5.9bn in FY15.
Positive surprise—full cost pass-through: SPALI guides for housing GM of 42% for FY12 (we had earlier expected GM to decline), as the firm has been able to increase sales prices to fully cover rising costs. The SG&A/sales ratio is expected at 11-12%. NM will rise slightly YoY.
Provincial need for growth sustainability: The firm has 23 years of experience with upcountry projects. The presales contribution from the provinces will jump from 16% in FY11 to 22% in FY12 and 25-30% over the next couple of years. SPALI has projects in six ex-Bangkok areas and will add another two provinces in FY13. Mr Tritecha suggested that SPALI could handle projects in 12 provinces over the long-term.
De-leveraging: Because of huge revenue in 2H12, the net gearing ratio will decline from 0.5x at end-June to 0.4x at YE12. Mr Tritecha indicated an internal policy cap of 0.5x. The average cost of debt is low at 3.89%.

Key takeaways from NDR in Singapore
Last week, we accompanied, Mr Tritecha Tangmatitham, an executive director of SPALI, on a roadshow to Singapore where we met with the managers of 15 funds (23 individuals). The fund managers we met were positive about SPALI’s strategy for sustaining long-term growth with a high margin and its clean balance sheet. Furthermore, the firm’s leadership in the provinces will augment earnings growth upside over the long-term. The highlights of the meetings are summarized below.
Comfortable presales growth of 15% per year: FY12 presales will hit a record high of Bt21bn, up 32% YoY, driven by 38% growth in condo bookings and 18% for low-rise (to Bt5.5bn). 9M12 presales are likely to hit almost Bt16bn, or 75% of the company’s FY12 presales target. The most recent condo launch in late Sept, Supalai Vista@Tiwanon (Bt1.4bn; average sales price of Bt46K/sq.m) is now 95% booked. Over the long-term, Mr Tritecha guided for targeted presales expansion of 15% per year (60-65% condo, the remainder low-rise).
On a QoQ basis, SPALI will post strong presales growth for 3Q-4Q12, led by an aggressive launch schedule. The company will start nine projects in 4Q12 worth a total of Bt10bn (54% of the value will be six low-rise projects, the rest will be three condos—Supalai Elite Sathorn-Suanplu, Monte@Viang Chiangmai and Lite Sathorn-Charoenrat). 
10% conservative revenue growth for FY12-13 and exceed 20% for FY14: The presales backlog at end-June was a record Bt28bn (mostly condo bookings), which will transfer in 2H12 through FY15—Bt7.2bn in 2H12, Bt6.0bn in FY13, Bt8.7bn in FY14 and Bt5.9bn in FY15. Mr Tritecha said that SPALI’s revenue growth target is 10% for FY12 and another 10% for FY13. Top-line expansion will exceed 20% in FY14. He guided that in both FY12 and FY13 second-half income will rise HoH.