Ananda Development

Ananda Development Plc (ANAN)

Investment thesis
ANAN’s share price will come under pressure, as we expect it to post net losses for 2Q-3Q13. The turning point will be 4Q13, when the firm will deliver a hefty net profit of Bt1.5bn, we believe. ANAN trades at a very low PER of only 6.1x. We have cut YE13 target price to Bt4.20 (from Bt5.50) to factor in earnings forecast cuts and a PER peg de-rating from 12x to 10x, which would be in line with the mean of our coverage.
Higher interest expenses—earnings forecast cuts
We have cut our core profit forecasts by 7% for FY13 and 9% for FY14 to factor in a Bt2.6bn bond issue on July 4 (5.2% coupon rate, one-year tenor). The bond increases the interest burden in 3Q13. However, the long-term benefit will be fatter GM for future projects, as the bond reduces financing costs by about 100 bps (it will be used to refinance project loans). ANAN will have a net-cash position at YE13. Current presales secure 76% of our revenue forecast for FY13 and 36% for FY14. ANAN will need to launch only one new Ideo condo in 3Q13 (Bt3.3bn) to support our revenue growth assumption of 15% for FY14.
Risk mitigation by having a JV partner
The firm signed a JV with Mitsui Fudosan Residential Co Ltd (a subsidiary of Mitsui Fodosan Co Ltd, a major Japanese real estate developer with 2012 revenue of US$14bn). ANAN will hold 49% in the JV company, which will develop a project 2-3x that of a normal Ideo condo. The partnership mitigates risk for ANAN. The development is to launch in Oct (revenue contribution in FY15).
Unchanged quarterly guidance
ANAN will post red net losses of Bt72m for 2Q13 and Bt113m for 3Q13, we forecast. Revenue (Bt846m in 2Q13 and Bt1.1bn in 3Q13) won’t be sufficient to cover the marketing expenses and additional interest costs tied to the newly-issued bond. ANAN will report a profit for 4Q13, when four Ideo Mobi condos will start transferring (record revenue of Bt6.9bn). Also, presales are expected to jump from Bt1.7bn in 1Q13 to Bt3bn in 2Q13, Bt4bn in 3Q13 and Bt5.8bn in 4Q13.
Four Ideo Mobi update—construction and mortgage pre-approval
As of June 5, construction progress at the four Ideo Mobi condos (to transfer in Oct onward) has been good. Civil work is 99% completed on Ideo Mobi Sathorn and Rama IX, 97% on Sukhumvit and 84% on Phyathai. ANAN mitigated transference risk by hosting a mortgage pre-approval campaign called “Ideo Mobi Home Financing Week” on July 4-7 (with BBL, SCB, KTB, Thanachart and UOB).  The response was good—62% of the pre-buyers of the four Ideo Mobi condos joined the event.