Asian Property Development

Asian Property Development Plc (AP)

Far short of our expectation
AP posted a 3Q12 net profit of Bt393m, down by 32% YoY and 31% QoQ.  The result was 20% below our estimate and 16% short of the consensus, due to disappointing housing sales (4% lower than modeled) and GM that was 50 bps lower than assumed. Excluding a Bt36m unrealized loss from investments and a Bt61m gain from the sale of PREB shares (AP’s stake fell from 8.6% at end-June to 1.4% at end-Sept), core profit was Bt368m, down by 39% YoY and 32% QoQ. Note that last year, AP’s earnings peaked in 3Q11.
Results highlights
The YoY earnings decline was due to a 21% dive in housing sales to Bt3.6bn and slimmer GM. Average GM for residential sales fell from 38.2% in 3Q11 to 33.5% because of a lower condo proportion in the revenue mix—the condo contribution to income dropped to 39% in 3Q12 (mainly The Address Asoke) from 51% in 3Q11. GM was 31.4% for low-rise and 36.9% for condos for the quarter. The SG&A/sales ratio rose 3% YoY to 19.6% in 3Q12 because of low sales. On a QoQ basis, AP booked a tax saving of Bt83m for 2Q12, but none for 3Q12, so the effective tax rate jumped to 22% from 13%. Revenue also fell 6% QoQ. The net gearing ratio was flat QoQ at 1.1x at end-Sept.
Outlook
4Q12 earnings will be the best of the year—we expect YoY and QoQ expansion, driven by revenue. Bt7.7bn in presales is to transfer during the quarter (Bt3.6bn low-rise and the rest of The Address Sathorn 12 condo—only 8% had transferred at end-Sept of Bt4.1bn (91% booked). In Oct, AP sold its remaining 1.4% stake in PREB, but the sale won’t have much impact on the 4Q12 bottom-line.
What’s changed? 
9M12 core profit represents 65% of our FY12 forecast (61% of the consensus), which we maintain unchanged, as the record backlog of B31bn at end-Sept secures 100% of our FY12 revenue forecast, 46% of FY13 and 43% in FY14. FY13 revenue visibility declined from 55% to 46%, because the 4Q11 flooding led to condo construction delays of about three months, on average.  
Recommendation
We prefer AP over a long-term investment horizon for its clear revenue visibility. Thus, any share price weakness as a result of the 3Q12 numbers would present an opportunity to accumulate. Our YE13 target price remains Bt10, pegged to a housing PER of 12x (2SDs above AP’s long-term mean). The stock has the third-best FY13 earnings growth profile of the ResDev plays under our coverage. AP currently trades at an FY13 PER of 10.1x, below the sector average of 11.0x.