Quality Houses

Quality Houses Plc (QH)

Operational wrap-up. QH’s presales were Bt18.1bn in 10M13 or 90% of its full year target; it should reach its full year presales target of Bt20bn, +20% YoY. In 3Q13, net profit was Bt882mn, -17% YoY and -20% QoQ due to the postponement of transfers of The Trust Central Pattaya condo to 4Q13 and lower equity income due to weaker profit at LHBANK and HMPRO. Major condo transfers: Casa Chang Puak (Chiangmai), Casa Asoke-Dindaeng and The Trust Residence Ratchada-Rama 3. 9M13 net profit came to Bt2.6bn, +53% YoY, accounting for 84% of our full year forecast and 95% of consensus. We see upside risk to consensus though we expect performance to slip QoQ in 4Q13 on fewer condo transfers than in 3Q13.
Growth small in 2014, but stronger in 2015. QH guided to presales growth of 15% YoY to Bt23bn but small revenue growth of just 5% to ~Bt19bn in 2014. In line with guidance, our 2014 revenue and core forecasts show growth of just 6% to Bt18.5bn and Bt3.1bn respectively. Most of its growth will come from higher contribution from HMPRO. We raise forecast by 1.6% to factor in a Bt50mn gain from selling Centre Point Silom to QHHR. In 2015, we estimate 14% revenue and core profit growth YoY to Bt21bn and Bt3.6bn respectively, driven by completion of more condos (>Bt10bn) and transferred. There is upside risk to our 2015 forecast.
Focus on mid-low low-rise. QH will increase its launches in the mid- to low-end segments for TH (Gusto Town and The Trust Town, units priced below Bt3mn) and SDH (Casa, The Trust). It will launch more duplex houses and 3-storey SDH (Casa Premium) where emphasis is on usable area rather than a large land plot. These will change its revenue mix for 2014 to 53% SDH (from 50%), 23% TH (from 17%), and 24% condo (from 33%). This implies strong growth of 50% from TH, with SDH flat and condo falling 25%. Key risk to 2014 forecast is TH delivery.
Growing backlog. QH’s backlog expanded to Bt10bn as of September (90% condo and 10% low-rise) from Bt7.2bn end-2012 and Bt4bn end-2011. This secures 94% of our 2013 forecast and 19% of each of 2014 and 2015.
Maintain BUY. At latest close price of Bt2.8/share, QH is undervalued, trading at 8.7x PER and 1.45x PBV of 2013F. It looks even cheaper trading at 0.74x adjusted PBV (marking investment value to market). In the near term, extraordinary gain from the sale of assets (HMPRO and Centre Point Silom) will be catalysts. BUY.