Supalai

Supalai Plc (SPALI)

2013F presales target cut, no surprise. SPALI cut its 2013F presales target to Bt20bn from Bt26bn. This did not come as a surprise; we had already lowered our sights and believe the market had as well. YTD presales are estimated at Bt13.1bn, 66% of its revised target. In line with its new target, the company revised down new launches to 17 projects with a value of Bt18.3bn from 19 projects valued at Bt23bn.
3Q13F flat QoQ but back strongly in 4Q13F (Nov 12 release). We estimate 3Q13 net profit at Bt320mn, up 5% QoQ but down 43% YoY. Revenue growth is estimated at 5% QoQ to Bt19bn and gross margin at ~38%, unchanged from 2Q13 due to product mix. Things look far better QoQ in 4Q13, supported by its backlog of Bt40bn, with Bt7.2bn to be transferred in 4Q13. This will bring 2013 revenue to Bt13.1bn, slightly above our forecast. With most of 4Q13 revenue coming from condos, we expect gross margin to improve as well. The major condo contributors are the Bt1.7bn Supalai Park Ratchapruek-Petchkasem (sold out), the Bt1.6bn City Resort Ratchada-Huaykwang (sold out) and the Bt2.6bn Supalai Premier Ratchathewi (90% sold). 
Guides to strong 2014F. SPALI guides to 2014 revenue of more than Bt20bn, underwritten by the transfer of Bt14.7bn in backlog (72% of revenue forecast) plus a better margin from the higher proportion of condos. This lines up with our forecast, but implies 15% upside for consensus. Note that the Bt14.7bn backlog to be transferred already secures earnings growth of 14% YoY in 2014. 
2014 strategy. Undergirded by a strong balance sheet, SPALI is actively purchasing land for future launches and has boosted its land acquisition budget by 50% YoY to Bt5bn in 2013. It has 39 plots designated for 17 low-rise and 1 condo in the provinces and 14 low-rise and 7 condos in Bangkok and vicinity. In the provinces, it will focus on low-rise and add two more provinces in the northeast.
Reiterate BUY and sector top pick. We like SPALI for its large backlog and superior growth outlook for 2014 and high visibility. On just current backlog, earnings will grow at least 14% in 2014. We believe the market has already discounted the disappointing 2013 presales. At last close, it is trading at an undemanding valuation of 10.0x PER of 2013; this falls sharply to 5.9x 2014. With attractive TTR of 53%, we maintain our BUY rating and keep it as our top pick in the sector.