Quality Houses

Quality Houses Plc (QH)
- Signs of relief were apparent among investors after their informative meetings with QH’s CFO recently, during our non-deal road shows to Europe and the UK. Operations and business targets are intact despite a challenging macro environment. We keep our FY13-15 EPS, now on par with consensus from 5-18% above before 2Q13 results. We continue to like QH’s core housing business turnaround, growing recurring income and value-unlocking through promising asset sales. Reiterate Outperform and target price at 15x CY14 P/E, 1SD above 6-year mean. Maintain Outperform with catalysts expected from an even stronger 3Q13.
What Happened
We took QH to Europe and the UK on a non-deal roadshow to meet 20 funds. Half of the investors were shareholders with very few not already familiar with QH. Of their greatest concern was the challenging macro environment, a weakening currency and rising interest rates. Banks’ more cautious lending was another. Oft-asked questions were: (1) the stage of the Thai property cycle; (2) QH’s outlook for FY14-15 after 70-80% sales growth expected for FY13; (3) QH’s market positioning and its differentiation after its diversification into various market segments and products; (4) any future investments in recurring properties (none); (5) new investments for shared equity income (none); (6) the divestment of HMPRO (QH plans to hold for another 3-5 years); and (7) debt and cash-flow position.  
 
What We Think
We believe that most investors are looking for the right time to invest/reinvest in QH given its compelling earnings outlook and attractive valuations, while some may stay sceptical of the macro environment and would rather wait and see. Some were already planning reverse road shows for ground- checking as they felt there was a huge disconnection between its share price and fundamentals and perhaps for the other developers as well.  
 
What You Should Do
Stay invested. QH is still trading at a substantial discount to its RNAV/share of THB5.60.