Supalai

Supalai Plc (SPALI)
Cut sales target but maintain transfer goal for growth in next two years
SPALI’s management cut its presale target for 2013 to B20bn from B26bn after
combined presales in the first nine months of the year stood at only B11.9bn, lower
than expected (B5.8bn for horizontal and B7.1bn for condominium projects). The
reason of the disappointing presales was low take-up rate of provincial
condominium projects launched in the first half of the year, including City Resort
Pasawang – Hat Yai that has been sold by 38% from the total value of B1.24bn and
Supalai Vista Mare Pattaya that has been sold by 39% from the total value of
B2.2bn. However, sales tend to increase in 4Q13 as the company is launching five
new condominium projects; two of which are in Bangkok and vicinity that could
make good sales, namely City Resort Phranangklao- Chaopraya that has been sold
by 70% from the total value of B1.75bn and Supalai City Resort Ratchayothin –
Phaholyothin that has almost been sold out with the total value of B740m.
Moreover, sales of horizontal projects would also be in line with projection during
the quarter. The company still keeps its plan to expand horizontal projects to other
provinces in the northeast region and to reduce condominium projects in provincial
areas to decrease a risk from fiercer competition.
- Profit to stabilize in 3Q13 before growing strongly in 4Q13 and 2014
Income from property sale in 3Q13 is estimated at B1.88bn, increasing 4%qoq
thanking mainly to horizontal projects. However, as this kind of projects has lower
profit margin than condominiums, overall gross profit margin would stay flat at
38.5%. Accordingly, normalized profit margin in 3Q13 would stand at 16% or a net
profit of B313m, stabilizing qoq but falling 46%yoy. However, for FY2013, the
income might be able to meet the target of B13.5bn as there are B7.2bn worth of
backlogs waiting to be transferred in 4Q13, which is already 97% of the income
target. During the quarter, three new condominiums will be transferred, which are
Supalai Park Ratchapruek – Petchkasem, City Resort Ratchada-Huaykwang, and
Supalai Premier Rachatewi; the first two projects have started the transfer since
October 2013 while the other project will start the transfer since November, so
there is a low risk for the transfer to miss the target. In addition, 2014 is likely
another year for SPALI’s earnings to grow notably to the target of B20bn because
there has been B14.7bn combined backlog from five condominiums sold two years
earlier that are going to finish construction in 2014.
- Fair value is B20.49 in 2013 and B25.88 in 2014
Despite low sales of provincial condominium projects this year, it will not have an
impact on the income base in the next two years (until 2015) and the company still
has time to boost its sales during the rest of the year. Current backlog at B39.2bn
would help strengthen SPALI’s income growth until 2015. Fair value at 10x PER is
B20.49 for 2013 and B25.88 for 2014. Reiterate BUY.