Quality Houses

Quality Houses Plc

Investment thesis
Last Friday, QH took analysts to visit Q-Twelve (a high-end brand), Casa Grand (upper mid range) and Gusto (low-end, new brand) projects. The company aims to penetrate the low-end segment and control GM for all segments. Its FY13 revenue target is Bt18bn, up 50%YoY and a new record, to be achieved by doubling low-end segment revenue and 31% growth in mid range to high-end segments. Our TRADING BUY rating stands, premised on QH’s investment value and a strong 2Q-3Q13 earnings outlook. Our YE13 SOTP target price remains Bt4.80 (a housing PER of 15x, 2SDs above its FY06-12 mean).
A strong response to Gusto, the new low-end TH brand
Gusto Sathorn, a TH project with sales prices ranging Bt2.4-2.8m per unit, uses tunnel technology (90 days for construction) and units are presold. The project launched in Feb 2013; the take-up rate is 60%. Revenue will be realized mainly in 2Q-4Q13. The GM target is 30%. QH will launch seven Gusto projects in 2013 of a total of 15 low-rise developments planned for this year. The revenue contribution from the low-end segment is targeted to rise from 28% in FY12 to 37% in FY13. 
Good margin for new projects
Most of the project launches since last year had good GMs of 32-33%. The site we visited, Casa Grand Petchakasem Sai 1, an upper mid range SDH launched in 1H12, has a 40% take-up rate and GM of 32-33%. As such, QH delivered a 1.4% YoY fatter GM for residential for sales in 1Q13 (to 31.0%). The 2Q13-3Q13 GM outlook is stronger both YoY and QoQ  (31.2% in 2Q12 and 30.7% in 3Q12)  because QH has no drag from old low-margin low-rise projects and will see good margins on four condos that are due to transfer in 2Q13 onward (GMs of at least 32%). 
Condo backlogs secure revenue in 2Q-3Q13
QH will post YoY and QoQ profit growth in 2Q-3Q13, led by condo transference. Three condos will start transferring in 2Q13—Casa Condo Asoke Dindang (Bt1.8bn; 84% booked), Casa Condo Chang Puak, Chiangmai (Bt429m; 88% booked) and The Trust Residence Ratchada-Pharam 3 (Bt2.8bn; 80% booked). In 3Q13, the firm plans to transfer The Trust Central Pattaya (Bt844m; 80% booked).
Substantial hidden value
QH has hidden investment value of Bt22bn, or Bt1.64/share, in associated firms—HMPRO, LHBANK, QHPF and QHHR. It would also realize gains if HMPRO were to sell assets to a property fund (HMPRO might spin off its Hua Hin property). HMPRO management is still weighing up the options, but QH indicated to us that the current plan is to spread the gain over 25-30 years rather than recognizing it all on a single one-off lump sum.