Pruksa Real Estate

Pruksa Real Estate Plc (PS)

PS’s 2015 business plan is more cautious than earlier guidance, with presales growth of 20%, revenue growth of 12% and 70-75 new projects. Its revenue forecast is slightly below ours but we believe it will be able to reach our forecast. Capacity expansion, shrinking business cycle, lower cancelation/rejection rate and building material costs are all supportive. We estimate 20% profit growth this year and see current valuation of 9.1x PER and 2.0x PBV in 2015 as inexpensive. BUY. 

 

Targets presales growth of 20.2% YoY to Bt47bn in 2015, more conservative than its earlier unofficial guidance of Bt51-52bn and double its industry forecast of 10% growth. It expects to expand its market share to 14.9% from 14.7% last year, lifting condo market share to 9.7% from 7.2%, but stepping TH share back slightly to 31.6% from 33.3% (first drop since 2011), keeping SDH stable. TH will still contribute the largest portion of presales at 43%, representing growth of 9.5%, followed by condo (31%, growth of 41.3%), SDH (25%, growth of 17.6%) and overseas (1%, growth of 72%). 

 

Plans revenue growth of 11.9% to Bt47bn (assuming it achieves 2014 target of Bt42bn in), more conservative than the earlier 15-20%. Of this, TH contributes 43%, condo 33%, SDH 23% and overseas 1%. Current backlog is Bt34.2bn, of which Bt22.9bn will be transferred this year, securing 49% of its full year revenue target.   

 

To launch 70-75 projects (39-41 TH, 21-22 SDH and 10-12 condo) worth an aggregate Bt55.0-61.0bn versus 62 projects worth Bt56.9bn last year. Coupled with 177 active projects worth Bt78.5bn, it will have record high available stock for sale of Bt133.5-139.5bn, large enough to support its presales growth this year.  

 

Backloaded presales, revenue, and new launches. PS expects 35% of its presales and revenue to come in 1H15 with the remaining 65% in 2H15. It plans to launch 17-18 projects for which it already has the land in 1H15, with 52-58 put on the market in 2H15. In our view, this reflects a slow land acquisition in 1H14 because of the political climate: PS spent only Bt6bn of the Bt10bn it had budgeted for land last year. 

 

Forecasts unchanged. PS’s presales growth target of 20.2% matches our forecast, but revenue growth of 11.9% is slightly less than our 15.6%. We leave our forecast as is as we believe PS will meet our forecast based on: 1) potentially higher condo revenue as current condo backlog of Bt16.6bn is larger than its revenue target of Bt15.7bn plus there will be additional revenue from sale of completed stock; 2) upside from faster low-rise transfers brought by a 75% capacity increase to 1,120 units/month with plans to shorten the business cycle to under 85 days from 87 days last year; 3) further cut in cancelation rate (it was down to 26% last year from 30%); and 4) margin upside from lower building material costs brought by sourcing some materials itself and wider condo margin. Condos completed this year were all launched in a strong market in 2012-2013 and price had already factored in the rise in minimum wage and building materials and completion was timely, so there was no cost overrun.  

 

Reiterate BUY. PS is not expensive in our view. At last close, it was trading at its mid-cycle of 9.1x PER and 2.0x PBV in 2015, down from 10.9x and 2.4x respectively in 2014, against the expectation of good earnings growth of 20% this year.