Pruksa Real Estate
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3Q14 profit disappointed us (but was in line with the street estimate) BUY
Pruksa Real Estate Plc (PS)
Below our estimate
PS posted a core profit of Bt1.8bn for 3Q14, up 37%% YoY but down 2% QoQ. The result was 7% below our estimate, as the top-line was 5% lower than we had assumed. The reported profit was in line with the consensus.
Results highlights
The strong YoY earnings growth was led by sales (up 19% YoY to Bt11.6bn), a fatter GM (up 2.3% YoY to 36.8%) and a lower SG&A/sales ratio (down 0.5% to 16.0%). The sales breakdown was 49% TH, 22% SDH and 29% condo. Transference rose by 31% YoY for condos, by 17% for SDHs and by 12% for THs. GM expanded 2.3% YoY (stable QoQ) to 36.8% in 3Q14. The QoQ profit slippage was because of a higher SG&A/sales ratio tied to a heavy launch schedule (the SG&A/sales ratio rose 0.5% QoQ) and a higher effective tax rate (up 2.0% QoQ to 21.6%), which outweighed the effect of 7% QoQ sales growth. Net gearing dipped from 0.9x at end-June to 0.8x at end-Sept.
Outlook
We anticipate a YoY earnings contraction in 4Q14, due to the high base set by an unprecedented profit of Bt2.3bn in 4Q13. Revenue may beat PS’s record of Bt14bn in 4Q13. But, net margin will be squeezed YoY, as precast factory capacity was expanded in Sept (from 640 units/month to 1,120 units/month), so the utilization rate will drop.
However, 4Q14 profit is expected to rise moderately QoQ, driven by top-line growth (Bt12bn in presales at end-Sept to transfer in 4Q14). PS has a big low-rise backlog and will start transferring three condos in 4Q14—The Tree Privata (Bt729m, 90% booked), The Privacy TIwanon (Bt283m, 27% booked) and Condolette Dwell (Bt996m, 59% booked, delayed from 3Q14).
What’s changed?
9M14 profit represents 72% of our FY14 forecast (78% of the consensus), so our model stands unchanged. Note that our FY14 earnings model is 10% above the consensus, so a street projection upgrade is likely (actual 10M14 transference equals about 75% of the street number). The Bt39bn presales backlog at end-Sept secures 99% of our FY14 revenue assumption and 33% of our FY15 forecast.
Recommendation
We maintain our BUY rating with a YE15 target price of Bt43, pegged to a PER of 13x (1SD above PS’s FY06-13 mean). PS trades at an FY15 PER of 10.1x against an 11.0x ResDev coverage mean. The share price would gain from a consensus earnings forecast upgrade. Additional presales from low-rise projects and inventory at completed condos would boost FY15 revenue visibility. We assume 12% top-line growth next year.
