Pruksa Real Estate

Pruksa Real Estate Plc (PS) 

In line with our estimate 

PS posted a core profit of Bt2.0bn for 4Q14, down 13% YoY (record earnings were posted for 4Q13) but up 2% QoQ. The bottom-line was Bt1.9bn, down 18% YoY but up 2% QoQ (PS booked a Bt87m provision for the Vietnam operation against no provision in 4Q13 and Bt85m in 3Q14). The results were in line with our estimate and the consensus. PS announced a DPS of Bt1.00 for FY14 (a 33% payout rate), a 3.1% yield (XD on March 11; payment on May 15)—in line with our model but above the consensus assumption of Bt0.92.

Results highlights 

The YoY earnings decline was due to the high base set by record sales of Bt14bn in 4Q13 and a higher SG&A/sales ratio. Sales dropped 10% YoY to Bt12bn (73% low-rise and 27% condo)—down by 17% for THs and by 15% for condos, but up 17% for SDHs. The SG&A/sales ratio rose from 14.5% in 4Q13 to 16.7% in 4Q14 because of depreciation on new prefabrication plants. Surprisingly, GM fattened 0.8% YoY to 36.7% in 4Q14, despite low run rates at the prefabrication plants. On a QoQ basis, the effect of 7% sales growth was mitigated by a 1.5% higher SG&A/sales ratio. The net gearing ratio declined from 0.8x at end-Sept to 0.7x at FY14.   

Outlook 

PS’s 1Q15 earnings will rise YoY (a low base was set by 1Q14 results) but fall QoQ (no new condos will start transferring in 1Q15), we believe. The top-line will expand YoY, led by low-rise sales, while remaining units of condos that started transferring in 4Q14 will be booked—The Tree Privata, Condolette Dwell and three small condos under The Privacy brand at Tiwanon, Pracha-uthit and Ratchada.  

What’s changed?  

We expect 10% earnings growth for FY15 . Presales at YE14 (Bt34bn in total, of which Bt23bn is to transfer this year) secured 48% of our FY15 revenue projection (our FY15 revenue assumption is 2% above PS’s target of Bt47bn). We conservatively assume a 0.4% YoY slimmer NM of 15.6% for FY15, which reflects depreciation of new prefabrication plants. If core margin were to achieve PS’s target of 16.0% (flat YoY), there would be 8% upside to our FY15 core profit forecast. 

Recommendation 

We suggest an entry price of Bt31, which implies an FY15 PER of 9.1x, equal to PS’s mean FY06-14 multiple. The key price catalyst will be anticipation of a 1Q15 presales recovery (to be announced in early April). We estimate presales of about Bt9.5bn for 1Q15, up by 15% YoY and 20% QoQ. New low-rise bookings and the launch of a sizable condo (The Tree Elegance Thanamnont, Bt2.1bn) will boost presales during 2Q15. Our BUY rating stands with a YE15 target price of Bt37, pegged to an FY15 PER of 11x, 0.5SD above PS’s FY06-14 mean.