Quality Houses

Quality Houses Plc (QH) 

Investment thesis

Yesterday, QH’s new CEO, Dr.Chadchart Sittipunt, opened house. He plans to build long-term earnings growth, which will take time to prove. But analysts and investors were impressed by his enthusiasm. QH’s residential revenue target is in line with our model, but is 10% above the street assumption. The stock trades at a cheap FY15 PER of 8.6x (our coverage mean is 10.5x), the third cheapest of our coverage (after AP and SIRI). Our BUY rating stands with an SOTP-derived YE15 target price of Bt4.80, pegged to a housing PER of 11x (1SD above its FY06-13 mean) and investment value of Bt1.6/share.

Aggressive FY15 business plan

QH plans FY15 launch value of at least Bt33bn (30 projects—53% condo and 47% low-rise; 82% in Bangkok and 18% upcountry)—all the land plots have been secured. Also, the firm is currently negotiating to buy eight further plots for low-rise projects. Thus, there could be launch upside to up to Bt40bn. Low-end to mid range projects will comprise about 62% of launch value. Only one luxury condo is to launch, Q.Sukhuvmit on Soi 6 (in March, Bt9.4bn). QH’s presales target is 24bn, up 25% (75% low-rise and 25% condo, 76% in Bangkok and 24% upcountry). 

The firm should achieve its FY15 condo presales target of Bt6.7bn (up 59% YoY), based on an assumed mean take-up rate of only 38% for 10 condo launches valued at Bt18bn (only Bt8bn launched in FY14). QH assumes a 16% take-up rate for Q.Sukhumvit condo (sales prices of Bt280-300k/sq.m). The TH presales target of Bt5.6bn also looks achievable, given the low FY14 base of Bt4.1bn. But, the SDH presales target of Bt13bn, up 16% YoY, may be a challenge, in our view.  

Strong revenue growth target is achievable 

QH guides for FY14 residential revenue of Bt20.8bn, up 12% YoY (7% above QH’s target of Bt19.4bn). The FY15 residential income target is Bt24bn, up 20% YoY, in line with our model. QH has Bt5.5bn in condo presales to transfer in FY15, which secures 23% of our residential revenue forecast. Six condos worth Bt9.8bn are due to start transferring in FY15 (Bt5bn in FY14)—The Trust Nakornprathom in 1Q15, The Trust Ngamwongwan and South Pattaya in 2Q15 and Q.Asoke, Casa condo Doi Suthep and The Trust Amata Nakorn in 4Q15. 

Efficiency improvements planned

GM is expected to rise from 33% for FY14 to 34% in FY15, boosted by fat-GM THs and condos and new fat-GM SDH projects (existing slim-GM SDH developments will contribute only modest revenues). The new projects have GMs ranging 32-35%. Also, Dr Chadchart plans to trim the SG&A/sales ratio from 18% in FY14. The firm guides for a net gearing ratio ceiling of 1.2x at YE15, despite Bt16bn in total CAPEX this year (Bt6bn for land acquisition and Bt10bn for construction).