Supalai

Supalai Plc (SPALI)

Investment thesis
We recommend waiting for SPALI to prove presales backlog transference in 4Q13. 3Q13 earnings will lag the results of peers and there is downside risk to the firm’s FY13 targets. Our TRADING BUY rating stands, as the stock trades at undemanding PERs of 6.4x for FY13 and 5.2x for FY14 and offers high dividend yields of 6.6% for this year and 8.1% for next. 
Downside risk to FY13 presales and revenue targets
SPALI maintains its FY13 targets at Bt26bn for presales (up 11% YoY) and Bt13.5bn for revenue (up 16% YoY). Note that 80% of the FY13 launch schedule of Bt25bn is slated for 2H13. Condo units worth Bt6bn will start transferring in Sept. However, in 1H13 SPALI achieved only 30% of its FY13 presales target and 28% of its top-line target for the year. As such, there is 5-10% downside risk to its revenue guidance. Our FY13 top-line forecast is 6% below management’s target and our FY14 projection is 10% lower than SPALI’s. Assuming a 65% take-up rate for six new condos in 4Q13, FY13 presales may fall 15-20% short of its target.
Flattish YoY core profit for 3Q13 expected
The firm’s 3Q13 earnings will lag our Residential Developer coverage. We forecast a flattish YoY core profit for SPALI (versus 49% growth for our coverage) on flat YoY revenue, due to lower condo transference (some units at City Resort Ratchada-Huaykwang started transferring in late Sept). On a QoQ basis, its profit should rise broadly in line in line with the sector.
About 50% of our FY13 top-line forecast is to be realized in 4Q13, led by transference at three condos—City Resort Ratchada-Huaykwang (Bt1.6bn; fully booked), Supalai Park Ratchapruek-Petchakasem (Bt1.7bn; fully booked) and Premier Ratchathewi (Bt3.2bn; 84% booked). SPALI should report healthy YoY and QoQ profit growth in 4Q13.
Recurring income to start in 3Q13 (minimal impact on our model)
Starting July 2013, the firm will realize Bt65m in annual rental income from office space at The Petron Mega Plaza, Manila, the Philippines (implying a good annual yield of 8.2% on an investment cost of about Bt800m). This recurring income prompted us to raise our earnings forecasts by 1% for FY13 and by 2% for FY14. Petron Mega Plaza is in Makati (CBD). It is the 9th-tallest building in metropolitan Manila.
Huge presales backlog to be realized
SPALI’s backlog stood at Bt37bn at end-June, of which Bt8.4bn is to be transferred in 2H13, Bt14bn in FY14, Bt12bn in FY15 and Bt3.3bn in FY16. The backlog secures 98% of our residential revenue forecast for FY13 and 88% for FY14, which is the highest of our coverage. Four condos are scheduled to transfer in 2H14 (details in Figure 7).