Residential Property

2015 another good year

Residential Property

- 3Q14 good for both presales and profit. Presales for the top seven developers

increased 8% QoQ, backed by a recovery in condo presales (+18% QoQ); low-rise presales

were flat. On average, 9M14 presales reached 63% of full year targets. On the profit

side, total profit for the top seven rose 49% YoY and 23% QoQ thanks to completion of

condos that brought higher deed transfers. Also, gross margin improved 150bps YoY

and 30bps QoQ, in line with a higher portion of high-margin condo.

- 4Q14: year’s best for most. Revenue and net profit are expected to be the year’s best

for LH, LPN, SIRI and SPALI. Profit for AP, PS and QH peaked in 3Q14. SPALI beat our

estimates and this led us to raise its 2014F by 7% and 2015F by 5%. We see upside risk

to 2014F for AP and PS since their 9M14 were indicative of a beat.

- 2015 backlog paying off. We anticipate 17% earnings growth next year backed by

huge backlog of Bt190.7bn. Of this, we estimate Bt87.2bn, mostly from condos

launched in 2012-2013, will be booked as revenue, securing 44% of our 2015F. Backlog

quality is also good as seen in a higher ratio of deposits received/backlog of 7.8% in

3Q14 from 7.5% in 2Q14. Cancelation risk is low, as selling price of new condos is 10-15%

higher than for those launched some years ago (transfers expected next year), driven

by higher land and development costs. Margin does not appear at risk, since higher

construction costs after the flooding and the increase in minimum wage in April 2012

are already factored into the selling prices.

- Good outlook for greater Bangkok, but not provinces. We expect a 10-15% rise in

new launches and presales in greater Bangkok, with continued demand from Thais as

well as expatriates as the government pushes its plan to encourage multinationals to

choose Thailand as their regional headquarters. However, provincial property is not

expected to recover soon, as pent-up demand has been absorbed, while new demand

is rising only slowly and is not strong enough to absorb existing supply.

- Impact from regulatory changes unlikely. 1) EIAs: According to the Thai Condo

Association, from March 2015 EIA approvals for projects in Bangkok will be approved by

Bangkok offices. This will help ease the bottleneck and shorten the time to get an EIA

from the 6-10 months it now takes. 2) Taxes: The new taxes on land and buildings and

the inheritance tax, to take effect in June 2015, could increase the supply of raw land.

3) Co-sureties: This law, to take effect in February 2015, will reduce the responsibility of

those entering into co-sureties but has virtually no effect on homebuyers as this is

little used in the taking out of a home loan.

- Sector picks: LPN and QH. We like LPN for its superior earnings growth in 2015, with

current high backlog fully securing our forecast. QH is cheap and has a strong growth

outlook, with positives in HMPRO’s unlocking of assets and a partner for LHBANK.