Sansiri

Investment thesis

We have upgraded our SIRI rating from SELL to TRADING BUY with a new target price of Bt2.40, pegged to a PER of 11x (1SD above its FY06-13 mean). Balance sheet risk will ease after the recapitalization in late Oct. SIRI will resume launching aggressively after de-leveraging. The firm intends to cut its SG&A expenses/sales ratio and boost transference (presales secure 82% of our FY14 residential revenue forecast and 70% of FY15). The stock trades at an FY15 PER of 9.6x against a sector mean of 10.6x.  

Eased balance sheet risk following recapitalization 

On Sept 12, an EGM approved a rights offering (RO) of shares with free warrants (SIRI-W2) at a ratio of 3:1:1 (three old shares for one new share and one free warrant) at an RO price of Bt1.30/share. We anticipate Bt4.7bn in proceeds through the RO subscription on Oct 27-31. The net gearing ratio is expected to plunge from 2.2x at end-June to 1.4x at YE14 (SIRI’s lowest gearing since 2011). Eased balance sheet risk will enable renewed heavy launches following YoY slippage in 9M14 (Figure 4-5). 

Gains from asset sales will mitigate effect of share dilution

The recapitalization will increase the number of shares from 9,596m at end-June to 14,417m at YE14 (3,614m new shares from the RO, 1,139m from exercising SIRI-W1 and 68.7m ESOP#6). The new shares from exercising SIRI-W2 (Bt3,614m units) and ESOP#7 (300m units) aren’t yet priced into our model, as they are out-of-the-money (exercise price of Bt2.50). Despite the share increase, net EPS for FY14 will be supported by Bt857m in gains from asset sales (Siripinyo building and land in Phuket). 

Cuts to FY14 targets in the cards

SIRI is likely to review its FY14 business plan soon. We believe many new condo launches will be delayed from 4Q14 to FY15, tied to SIRI’s policy of getting EIA certification before launch. The firm earlier planned to launch eight condos in 4Q14 (Bt15bn in total value), but so far only two have EIA certification (Hasu on Sukhumvit 77 and one upcountry condo). As such, we expect the FY14 launch schedule to be cut from Bt33bn to about Bt23bn. In that case, the FY14 presales target would be halved from Bt30bn. FY14 top-line guidance (currently Bt33bn) also looks set to be trimmed; we forecast Bt31bn (the street number is only Bt29bn). 

Time to deliver presales and earnings

The firm guides for presales of Bt7bn in 4Q14, up by 181% QoQ and 40% YoY (albeit from a very low base—YoY weakness in 4Q13-3Q14), led by Bt8.8bn in low-rise launches (4 SDH and one TH) and Hasu condo (Bt2bn). Residential revenue growth of 3% YoY to Bt7bn is guided for 3Q14 (Bt4.2bn in 1Q14, down 15% YoY, Bt5.9bn in 2Q14, down 20% YoY). Residential revenue is expected to peak for the year at Bt12.7bn in 4Q14, up by 40% YoY and 80% QoQ. The SG&A/sales ratio should decline from 23.1% in 3Q13 to 21.0% in 3Q14.