Quality Houses

Quality Houses Plc (QH)

Far above all estimates
QH announced a 1Q13 net profit of Bt576m, up 113% YoY but down 21% QoQ. The bottom-line was 26% above our estimate and 14% higher than the consensus number, due to a one-time gain from an asset sale during the quarter. Excluding the Bt112m net-of-tax gain from the sale of the Centre Point Saladaeng serviced apartment building, core profit was Bt464m, up 52% YoY but down 35% QoQ, in line with our estimate.
Results highlights
The strong YoY core earnings growth was driven by 43% housing revenue expansion, fatter housing GM and a lower SG&A/sales ratio. QH posted Bt3bn in housing revenue in 1Q13, up 43% YoY—75% low-rise and 25% condo. Housing GM rose from a low base of 29.6% in 1Q12 to 31%, due to good low-rise GM. The SG&A/revenue ratio plunged from 21.5% in 1Q12 to 20.4% in 1Q13 on a higher top-line. The QoQ earnings contraction was due to the high base set by 4Q12 (substantial housing revenue of Bt4.5bn and a core profit of Bt717m—the best quarter of FY12).
Equity income from affiliates jumped 15% YoY, due to additional profit-sharing from QHHR in 1Q13 (none in 1Q12) and earnings growth among QHPF, HMPRO and LHRB. Net gearing dipped from 1.4x at YE12 to 1.2x at end-March (the best balance sheet since at YE10).
Outlook
QH will report a YoY and QoQ profit jump in 2Q13, driven by housing revenue. Three condos will start transferring during the quarter—Casa Condo Asoke Dindang (Bt1.8bn; 70% booked), Casa Condo Chang Puak, Chiangmai (Bt429m; 80% booked) and The Trust Residence Ratchada-Pharam 3 (Bt2.8bn; 72% booked).
What’s changed?
1Q13 core profit accounts for 19% of our full-year forecast (19% of the consensus), which we maintain unchanged. There could be scope for upside to our earnings projection if GM for condo projects and a new TH brand (Gusto) were to beat our assumptions. 
Recommendation
Our TRADING BUY rating stands with an unchanged YE13 target price of Bt4.80, pegged to a housing PER of 15x (2SDs above its FY06-12) and Bt2.5/share of investment value. QH has substantial hidden investment value (HMPRO, LHBANK, QHPF and QHHR), equal to 60% of its market capitalization. The core business (residential sales) has performed strongly on record 1Q13 presales of Bt7.3bn (37% of QH’s FY13 presales target of Bt20bn).