Property Development Housing

Recognizing profit in 2015 Neutral

Property Development Housing

Property sector's profit would be strong in 4Q14 and 2015 thanks to high transfer of

backlogs from condominium businesses. We recommend stocks with potential strong

growth in 2015, below average P/E ratio, and high upside: SPALI, PS, and AP.

- Presales peak in 3Q14

3Q14 presales of 15 companies under our coverage were as high as B70bn,

leaping 23%qoq and 28%yoy thanks to opening of new projects, especially

condominiums near mass transit lines with high take-up rate. However,

4Q14 presales are projected to drop to B50-60bn as a result of low season,

but transfer would be high. The policy rate would be kept at 2% throughout

2015, boosting housing loans. Land tax would have a limited negative effect

on property sector because housing companies usually use their lands

immediately. On the other hand, it would even help housing companies find

lands at better prices because it would increase land supply and discourage

land speculation.

- Profit to grow 29% in 2014, 14% in 2015

3Q14 normalized profit of 15 companies under our coverage was B10bn,

growing 36%qoq and 53%yoy as a result of higher transferred income from

horizontal projects and condominiums. Property sector's net profit is

projected to make the year's peak in 4Q14 as condominium transfer of

many companies (e.g. PS, SPALI, ANAN, SIRI, and LPN) is expected to peak

as well. Overall, the sector's normalized profit is estimated to grow by

29%yoy to B35bn in 2014. End-3Q14 backlog was B262bn (11% from

horizontal projects and 89% from condominiums); at least B120bn of which

would be transferred and generate income in 2015. Thus, overall normalized

profit is projected to grow by 14%yoy to B40bn in 2015. However, property

sector would be depressed as household debt has increased from B8.99tr to

B9.8tr (nine-year high) in one year, which is 82% of GDP.

- 2015 top picks: SPALI, PS, AP

We reiterate NEUTRAL, focusing on potential strong growth in 2015, below

average P/E ratio, and high upside. Top picks are SPALI([email protected]),