Supalai

Supalai Plc (SPALI)

Q1 2013 weak presale. As expected, SPALI’s consolidated presales were low at just
Bt3.8bn in 1Q13 with 46% condo and 54% low-rise. With only two low-rise projects
worth Bt1.5bn launched in the period, the quarter provided just 14% of its full year
target (Bt26bn). Presales came primarily from old projects - Supalai Prima Riva,
Supaliai Willington and Supalai River Resort. Despite the low presales in 1Q13, we
expect it to make its full year target as we expect presales to rise QoQ in 2Q13 and
3Q13 and peak in 4Q13.
Q1 2013F preview; release on May 14. The company gave guidance that suggests 1Q13
earnings of Bt450-480mn, slightly higher than our earlier forecast of Bt4.1mn, as gross
margin was wider than expected. Management expects 2Q13 to be bottom for
revenue, pulled down by lack of condo transfers, but then jump QoQ in 3Q13 and peak
in 4Q13 as three condos will be completed: Supalai Park Ratchapruk-Petchkasem, City
Resort Ratchada-Huaykwang, and Supalai Premier Ratchathewi.
Good visibility. SPALI currently has Bt34.9bn backlog which secures 80% of our 2013
forecast, 66% for 2014 and 55% for 2015.
Strategic moves. a) Adding two new provinces, Rayong and Udonthani. Provinces will
contribute 29% of total presales this year from 25% last year; b) Projects in the
provinces will focus on low-rise projects rather than condos as it sees a risk of slow
take-up; c) It will increase duplex house projects as these are more affordable than
SDH but with similar usable area; d) It will increase recurring income in the future by
using its excess cash, including a deal to buy an investment property in ASEAN worth
less than Bt1bn, expected to be concluded soon. Its recurring income is low at just 2%
of total revenue now.
Rising rejection rate. Management says that bank rejection rates are rising to 8-10%,
but the rejection rate for SPALI’s projects is better than the market average at 6%
(rising from 3%).
Maintain BUY. In the near term, in our view, SPALI’s share price could lag peers due
to its unexciting operations in 1Q13. However, we look for improvement in both
presales and performance QoQ in 2Q13, backed by condo launches and condo
completion. On a full year basis, earnings growth this year may look slow compared to
peers, but its growth will beat them next year backed by substantial increase in condo
transfers. Thus, we maintain a BUY rating on the stock.