Quality Houses

Quality Houses Plc (QH)

Event

- We maintain our Outperform rating on Quality Houses (QH) but lower our target price to Bt5.0 from Bt5.8. We trim our EPS estimates 6-7% for 2013-15 to reflect QH’s updated launch and transfer schedule. We believe 2013 will be a stronger year for QH as it should continue to benefit from moving up the learning curve and on our expectations of better housing demand. With the value of its associate investment business becoming closer to QH’s market cap, we view QH as an attractive investment on its cheap core valuation.

Impact
- Strong normalised profit growth. We forecast QH will deliver EPS growth of 9-12% in 2013-14, respectively. Stripping out extra items, its normalised profit growth would have been 40% for 2013 and 16% for 2014. Improving presales momentum from its mid-to-low end segments under the Gusto brand with better gross margins are key support factors.
- Strong YTD presales. QH’s 1H13 presales reached Bt12.5bn, up 48% from the first six months a year earlier. Its YTD presales represent 63% of QH’s own presales target of Bt20bn for 2013. This year, QH is aggressively aiming for revenue from project sales growth of 50% to Bt18bn.
- 2013 new launches to be more diversified. In 2013, QH plans to open 20 new projects worth Bt19.4bn vs 16 projects worth Bt19.7bn in 2012. QH will continue to concentrate on the mid-to-low end housing segment priced below Bt2-5m. Also, the company aims to diversify more into the provinces, including Chiangmai, Pattaya, and Nakorn Pathom.
- Moderate backlog to secure revenue. As of May, QH’s backlog stood at Bt14bn, of which Bt7.4bn will be realised in 2013, Bt2.8bn in 2014 and the rest in 2015. Of that, Bt1.8bn was from low-rise sales and the rest from condo. This means our revenue forecasts for QH have been 62% secured in 2013, 14% in 2014, and 16% in 2015.

Earnings and target price revision
- We reduce our EPS estimates 6-7% for 2013-15 to reflect the new launch and transfer schedule. We lower our TP to Bt5.0 from Bt5.80.

Price catalyst
- 12-month price target: Bt5.00 based on a DCF methodology.
- Catalyst: Rising presale momentum and GM. No transfer delay.

Action and recommendation
- Maintain Outperform rating with a new TP of Bt5.0, implying a core 2013E PER of 6.2x or 2013E PER of 17.4x. With its low core operation valuation, while the value of its associate investment business is growing