AP (Thailand)

AP (Thailand) Plc (AP)

AP is set to report 2Q13 net profit of THB436m (-24% yoy, +96% qoq), mainly driven by stronger transfers. With 1H13 earnings at only 27% of our old FY13 estimate, YTD presales forming 42% of our FY13 target and relatively low take-up rates, the outlook is increasingly gloomy. We cut FY13-15 EPS by 8-22% and our target price by 24%, now based on 8x CY14 P/E (1 s.d. above its 6-year mean) vs. 8.5x previously. AP’s outlook appears shakier and it could miss its presales and transfer targets for FY13. As our numbers are fairly below consensus, we do not think possible target misses are fully in the price. Maintain Neutral given the lack of positive catalysts. Switch to QH, PS or SIRI.
 
What Happened
We expect AP to report 2Q13 net profit of THB436m (-24% yoy, +96% qoq) vs. consensus of THB495m. The key driver was the rise in transfers (+10% yoy, +49% qoq), thanks to increasing transfers from both SDH/TH (+12% yoy, +25% qoq) and condos (+7% yoy, +107% qoq). Aspire Sukhumvit 50 and Aspire Rama IV condos were the principal contributor to 2Q13 condo revenues. 1H13 net profit is set to form 30% of our new FY13 estimate.  
 
What We Think
Despite an expected earnings pick-up in 2Q13, we remain cautious on AP’s outlook. With the muted pace of YTD presales (42% of AP’s FY13 target of THB22bn), slow 1H13 transfer momentum (35% of AP’s FY13 target of THB20bn) and an increasingly challenging 2H13 given a consumption slowdown and AP’s record of a 40-60% rejection rate during 2008-09 due to the global credit crisis despite its focus on mid- to higher-end segments, AP could miss targets despite its high FY13 revenue locked-in rate on the back of solid backlog. Also, its effort to boost its corporate brand will continue to keep SG&A high and hence pressure earnings.  
 
What You Should Do
Arguably, AP’s valuation is attractively cheap but it could stay cheap given the lack of compelling catalysts for more exciting growth. We believe that possible shortfalls in both presales and transfers for FY13 are not fully in the price. Also, a run of poor project execution remains the hurdle to market share gains. We recommend a switch to QH, PS or SIRI for a more promising outlook and greater upside risk than downside.