Supalai

Supalai Plc (SPALI) 

Investment thesis

SPALI’s FY15 presales growth target of 19% looks too high to us. The firm’s optimism over the presales outlook for condo launches is a little misplaced, given the current state of the market. Our model indicates that profit growth will slow from 50% in FY14 to 13% in FY15 and zero in FY16 We advise waiting for clear evidence of a presales recovery (probably in May) before taking or building positions. We have cut our YE15 target price from Bt32 to Bt28, as we have de-rated our PER peg from 11x to 9x to factor in FY16 earnings risk (condo completion value will fall 16% YoY). 

SPALI will miss FY14 presales and revenue targets …

The firm guides for FY14 presales growth of 4% to Bt19bn (78% in Bangkok, 22% upcountry), 12% below its earlier target of Bt22bn, due to the postponement of SPALI Sathorn-Narathiwas condo, weak take-up rates for new launches in 4Q14 and lower demand in the provinces. 4Q14 presales were only Bt5bn, down by 13% YoY and 2% QoQ. Management suggests FY14 revenue of Bt18.6bn (80% Bangkok, 20% upcountry), up 47% YoY, but that number would be Bt20bn below the earlier FY14 target. 

…but its SG&A/sale ratio will be lower than our assumption

SPALI proved a lower SG&A/sales ratio than we had assumed—down 1% YoY to 10.5% for FY14 (12% in our model). Reported FY14 GM will be in line with our assumption of 40.3%. Management confirmed record earnings for FY14, but not for 4Q14. We estimate an all-time high core profit of Bt4.3bn for FY14, up 50%, which implies core earnings of Bt1.5bn for 4Q14, down by 16% YoY and 6% QoQ. 

FY15 business targets are ambitious, maybe too ambitious

SPALI plans FY15 launch value of Bt31bn (51% low-rise and 49% condo), up 11% YoY—relatively modest, given that the delayed Sathorn-Narathiwas condo launch will be this year. But we believe management’s FY15 presales growth target of 19% YoY to Bt23bn (low-rise presales up 20% to Bt10bn, condo presales up 18% to Bt13bn) is too bullish. The FY15 residential revenue target is Bt22bn, up 19% YoY (60% condo, 40% low-rise). Our residential sales assumption is only Bt21bn. The presales backlog is Bt39bn, of which Bt18bn is to transfer in FY15, Bt9.6bn in FY16, Bt9.1bn in FY17 and Bt2.4bn in FY18. The backlog secures 80% of SPALI’s FY15 residential revenue target and 83% of our projection. 

Overseas investments are insignificant 

Rental income from the office building in the Philippines is expected to rise from Bt80m in FY14 to Bt90m in FY15. The impact on the top-line and earnings is small (but if SPALI were to sell the building, it might book a gain). The firm recently invested Bt280m in a residential project in Australia (a 25% stake with a local partner). The project is sizable at Bt9bn, but will be developed over 10 years. Thus, it won’t add much to SPALI’s bottom-line in FY15.