Pruksa Real Estate

Pruksa Real Estate Plc (PS) 

Investment thesis

PS’s failure to deliver its FY14 presales target and weak 4Q14 bookings didn’t surprise us or the market. The market will wait for proof of presales growth and margin sustainability before it bids up the share price, we believe. Moderate presales growth is expected for March, as two condos will launch during 1Q15 (Midtown Ladprao 24 and The Tree Elegance Nonthaburi). Our BUY rating stands with a YE15 target price of Bt37, pegged to a PER of 11x (0.5SD above PS’s FY06-14 mean).  

FY14 presales target missed, but revenue target achievable

FY14 presales were Bt39bn (down 5% YoY), which missed PS’s target by 9%, due to launch postponements for Chapter One Midtown Ladprao 24 condo (Bt1.8bn) and two TH projects from 4Q14 to 1Q15. But PS  will beat its FY14 revenue target of Bt42bn slightly (Bt42.5bn in our model). Thus, 4Q14 presales were Bt7.8bn, up 3% YoY but down 42% QoQ. We anticipate Bt12bn in revenue for the quarter (down 11% YoY but up 5% QoQ) and a Bt1.8bn net profit (down 20% YoY, flattish QoQ), including a Bt70m provision for the Vietnam operation (none in 4Q13).     

Aggressive FY15 business plan

Scheduled FY15 launch value is Bt55-61bn (70-75 projects) versus Bt57bn for FY14 (62 projects). PS aims for presales growth of 20% YoY to Bt47bn (68% low-rise, 31% condo). Its low-rise presales growth target of 12% to Bt32bn looks achievable, given its historical record (growth of 12% in FY13 and 13% in FY14). However, the condo presales growth target of 41% to Bt14bn appears too bullish. PS guides for revenue of Bt47bn for FY15, up 12%. The presales backlog (Bt34bn in total, of which Bt23bn is to transfer this year) secures 49% of targeted FY15 revenue.

Minimum net margin of 15% 

PS intends to sustain a net margin of at least 15% for FY15 (15.5% in our model; the street assumption is 15.2%), despite Bt190m in additional depreciation expenses from the expansion of prefabrication plants (capacity jumped 75% to 1,120 units/month in Oct 2014). The scope for NM upside is capped in the near future by low utilization rates for the new precast factories in their initial phase of operation. PS expects the run rates to rise from 20% in 4Q14 to 80% in 2H15. However, a mean sales price increase of 2-5% and easing construction costs (chiefly lower fuel prices) mitigate the downside risks to PS’s margins.  

Slightly higher leverage on heavy land CAPEX in FY15

The interest-bearing debt/equity ratio is likely to post a decline from 0.9x at end-Sept 2014 to 0.8x at YE14, thanks to a shorter mean booking-to- transference interval—from 90 days in 3Q14 to 85 days in 4Q14. However, the leverage ratio will increase somewhat during this year to 0.8-1.0x (the internal policy ceiling is 1.25x), as the land acquisition budget has jumped from Bt6.2bn for FY14 to Bt14bn for FY15.