AP (Thailand)

AP (Thailand) Plc (AP)  

A better margin and control over costs than anticipated led AP to beat market 2014 profit estimates. Earnings will continue to benefit from further cuts in SG&A expense/revenue and sales fee income this year and next, and in response, we raise 2015 and 2016 forecasts, which we expect the market to do as well. In the near term, the good start for presales in 2M15 and jump in 2Q15 will be share price catalysts. Though AP has outperformed the market by 15% YTD, it is still trading at an undemanding valuation of 1.2x PBV, below historical mid-cycle. We raise PT to Bt9/share and upgrade our rating to BUY from Neutral.   

Strong presales in 2M15. Reflecting its strong brand and product, AP achieved presales of Bt3.4bn in 2M15, a jump of 137% YoY, accounting for 12% of its full year target of Bt28.3bn, +25% YoY. Behind this was a strong response to the recent launch 

of The City Sukhumvit-Bangna,  for which take-up rate was 28% in just a week. This implies an average monthly selling rate of Bt1.2bn for low-rise, up 14% from last year’s average and 7% above our 2015 estimate. Condo presales turned around to Bt942mn in 

2M15 from only Bt10mn in 1Q14 without last year’s cancelations at Rhythm Sathorn and Galerie rue de 39. We were surprised at the good response to the re-launch of 

Rhythm Sathorn with 11% sold in 4Q14 despite a price increase of nearly 40%. Condo launches lifting presales QoQ in 2Q15. Five condos valued at Bt12.5bn will be 

launched in June: the Bt3.6 bn Aspire Erawan Phase 1, the Bt2.5 bn Aspire Therdtai, the Bt500 mn A s p i r e L a d p r a o 113, the Bt390 mn A s p i r e W u t t a k a r d

and the Bt6.3bn Life Asoke, the last of which is being developed under a JV. In general, take-up rate for the Aspire brand is not as good as for Rhythm, but we expect the pattern to be broken for 

Life Asoke – which is near the MRT Petchburi station. Good cost control. AP surprised with a beat in 2014 on good cost controls via close monitoring of expenses and presales/revenue that slashed SG&A expense/revenue to 18.4% from 19.4% in 2013. The company guides to a further 50pbs cut this year. 

Earnings upgrade. We raise forecast by 13% to Bt2.9bn in 2015 and by 9% to Bt3.3bn in 2016. Our changes include: 1) raising condo revenue by 6% to Bt11.1bn in 2015 to 

factor in better than expected presales at Rhythm Sathorn, but this is then cut by 11% to Bt9.9bn in 2016; 2) raising margin by 50pbs for 2015 and 30pbs for 2016 after it raised prices; 3) income from service fees from JVs as it handles the sales; and 4) cut SG&A expense/revenue by 50 pbs each year to accommodate its good cost control.  In sum, we look for earnings growth of 10% in 2015 and 14% in 2016. We are now ahead of consensus by 9% for 2015 and 17% for 2016 and expect the market to adjust as well.  

Upgrade to BUY. We raise our TP to Bt9/share after raising our PBV valuation to 1.50x from 1.25x on a better ROE after the earnings upgrade and also on rolling our TP over to end-2015. The stock is trading at 1.2x PBV, below its historical mid-cycle of 1.3x and offers attractive TTR of 30%. We thus upgrade to BUY.