Sansiri

Sansiri Plc (SIRI)

Disappointing core earnings
SIRI reported a core profit of Bt489m for 2Q13, down by 5% YoY but a turnaround from a core loss of Bt104m for 1Q13. The core result was 19% below our estimate and 28% short of the consensus, mainly due to higher-than-expected SG&A expenses. Net profit was Bt535m, boosted by a Bt14m FX gain and the reversal of a Bt32m impairment on a land plot.  
Results highlights
The YoY earnings contraction was due to a core margin decline from 9.5% in 2Q12 to 6.5% in 2Q13. Housing GM dipped 1.0% YoY to 32.4%. The SG&A/sales ratio jumped from 22.1% in 2Q12 to 24.2% in 2Q13, due to higher marketing expenses. Slimmer margins outweighed the effect of 40% YoY growth in residential sales to Bt7.4bn. The QoQ bottom-line turnaround was due to a 51% jump in residential sales, a 0.4% fatter housing GM and a lower SG&A expense/sale ratio (an 8.8% QoQ dive from 33.0% in 1Q13, when a big event was held at Siam Paragon). The net gearing ratio rose from 1.6x at end-March to 1.8x at end-June.
Outlook
We anticipate YoY and QoQ earnings growth in 3Q13, driven by residential sales expansion (presales backlog transference). Management targets transferring Bt10bn during the quarter, double YoY and up about 30% QoQ. The best revenue of the year will be in 4Q13. Management aims to improve SIRI’s profitability ratios (by controlling SG&A expenses better) rather than pushing presales aggressively. In that case, we would expect 2H13 core margin to fatten YoY and HoH.
What’s changed?
We have cut our profit forecasts by 12% for FY13 and by 11% for FY14 to factor in the disappointing 2Q13 results. Our SG&A/sales ratio assumptions for FY13-14 rise 1.2%, due to 1.0% downgrades to our core margin assumptions for the two years (to 9.9% for FY13 and 10.5% for FY14). The presales backlog at end-June secures 76% of our FY13 top-line forecast and 49% of FY14. 1H13 profit represents 11% of our new model (10% of the consensus forecast).
Recommendation
We maintain our TRADING BUY rating on SIRI with a downgraded YE13 target price of Bt3.60 (it was previously Bt4), pegged to a PER of 11x. The poor 1H3 results are mostly priced in already. SIRI now trades at PERs of 8.3x for FY13 and 7.0x for FY14 and it should pay the most generous dividend yields of our Residential Developer coverage of 6.3% for this year and 7.4% next. Earnings are expected to bounce YoY and HoH in 2H13, which would boost investor interest in the stock.