Pruksa Real Estate

Pruksa Real Estate Plc (PS)

Investment thesis
The sharp price correction during the past month presents a good entry opportunity, as PS will soon announce all-time high presales for 1Q13. The firm is likely to deliver record bookings for both 1Q13 and 2Q13 (growth for both low-rise and condos). Historical statistics show that presales have a close 76% correlation to PS’s share price movements. The stock currently trades at a cheap FY13 PEG of 0.3x (0.7x for the sector). PS remains our top pick with an unchanged YE13 target price of Bt38, pegged to a PER of 15x.
Unwarranted  concern over rising emphasis on condos
The market overreacted (19% share price dive from PS’s Feb 22 peak) to management announcing a new business plan to build the condo proportion of revenue to 50% over the long-term. In our view, PS will build the condo proportion from 26% in FY13 to 40% in FY15, as the firm has a gearing ratio cap policy of 1.5x (0.9x at YE12). Secondly, it will expand its 8-storey low-end condo product in place of low-margin TH projects in some locations where land costs are high. 
Expanded expectations for 1Q13 pre-sales
The firm resumed a heavy launch schedule in 1Q13 supported by a stronger balance sheet (a YE12 D/E ratio of 1.2x, its lowest since YE09). As such, we expect it to deliver unprecedented presales of Bt11.5bn for 1Q13 (its last record was Bt11.4bn in 2Q10). Low-rise bookings will set a new record of Bt7.5bn and condo bookings will post growth of 51% YoY and 114% QoQ to Bt4bn. PS is also likely to set a new presales record for 2Q13. It plans Bt55bn in launches this year, up 148% YoY. There is scope for upside its FY13 presales target—1H13 presales will probably comprise about 65% of the firm’s Bt35bn full-year target.
All-time high low-rise pre-sales
Low-rise bookings are expected to comprise 65% of 1Q13 presales. As noted above, we expect record low-rise bookings of Bt7.5bn for the quarter, up by 146% YoY and 10% QoQ (the previous low-rise record was Bt7.4bn in 1Q11). The drivers were strong presales from sizable projects at Pattanakarn and a heavy low-rise launch schedule (Bt5.5bn in 1Q13, up 69% YoY). 1Q13 low-rise presales will boost the secured proportion of our FY13 revenue forecast to 95% from 73%.
Fatter margin in 2013
PS will start recognizing income from eight condos with NMs of 16.1-20% (18.3% mean); its core margin in FY12 was 14.4%. The eight condos (Bt11bn in project value; 87% mean take-up rate) will comprise 23% of FY13 revenue. Thus, NM this year is forecast to rise by 1.8% to 16.2% (the best NM for the past three years) which will outperform the FY13 sectoral NM growth rate of 0.8%. Our NM forecast is 0.9% above the consensus projection.