Pruksa Real Estate

Pruksa Real Estate Plc (PS)

Below BLS and street estimates
PS reported a 1Q13 core profit of Bt773m, up 22% YoY but down 39% QoQ. The core result was 22% below our estimate and 29% short of the street number, due to 4% lower revenue (transference was delayed at Plum Nawamin condo from March to April) and slimmer NM than modeled (12.3% in 1Q13; we had assumed 15.1%). 
Results highlights
The disappointing 1Q13 results were due to a mismatch between revenue recognition and marketing expenses for new projects launched during the quarter. PS posted strong YoY earnings growth in 1Q13, led by a 36% jump in revenue to Bt6.3bn (mainly low-rise). Revenue comprised 96% low-rise and only 4% condo. Housing GM dipped from 35.5% n 1Q12 to 34.3% in 1Q13, due to rising construction and wage costs. The SG&A/sales ratio increased from 18% in 1Q12 to 18.6% in 1Q13. Presales reported a new record of Bt12bn for the quarter.
The QoQ profit contraction was due to the high base set by 4Q12 (the best earnings quarter of FY12). Revenue dived 24% QoQ, which outweighed the effect of GM expansion from 32.3%% in 4Q12 to 34.3% in 1Q13. The net gearing ratio inched up from 0.8x at YE12 to 0.9x at end-March.  
Outlook
PS will post both YoY and QoQ earnings growth for 2Q13, driven by revenue expansion (presales transference). Two condos, which are almost fully booked, started to transfer in April—Plum Nawamin (Bt633m) and The Seed Mingle (Bt1.8bn). In June, Condolette (Bt650m; 80% booked) and Fuse Mobius (Bt2.7bn; 86% booked) will start transferring. NM will fatten QoQ in 2Q13 onward on a greater proportionate contribution of high-GM condo sales in the revenue mix.
What’s changed? 
1Q13 core profit will prove to be the weakest quarter of the year—14% of our FY13 forecast (15% of the consensus). We maintain our model unchanged, as presales secure 96% of our FY13 revenue projection. We expect strong earnings growth of 41% for this year, driven by both top-line expansion and a fatter GM (more sales of fat-margin products).
Recommendation
Profit should sustain a QoQ uptrend in 2Q-3Q13 and we anticipate record presales in 3Q13, driven by condo project launches. PS’s valuation is compelling—FY13 PEG of only 0.3x (0.8x for the sector). A re-rating is deserved ahead of unprecedented earnings for FY13. The stock previously traded at a high PER of 17.8x (2SDs above its mean) in 2010 versus an FY13 PER of only 11.2x. Our YE13 target price is Bt38, pegged to a PER of 15x (1.7SDs above its FY06-12 mean).