Supalai

Supalai Plc (SPALI) 

 

Above our model

SPALI reported a core profit of Bt903m for 1Q15, a jump of 22% YoY but a dive of 44% QoQ. The result was 8% above our estimate, due to higher-than-expected residential revenue. The profit was in line with the consensus number. 

Results highlights 

The YoY strong profit growth attained a boost from residential sales expansion (up 57% YoY to Bt4.9bn—67% condo and 33% low-rises) and a slimmer SG&A/sales ratio (down 1.0% YoY to 10.4%). Three condos drove residential sales for 1Q15, comprising the remaining Wellington condo units (Bt4.8bn; 88% booked), Premier Asoke (Bt2.8bn; fully booked) and the start of transfers for Park Ekkamai-Thonglor (Bt2bn, fully booked). Residential GM declined 5.9% YoY to 36.0% in 2Q15 (the lowest GM since 2011) dampened by low GM for the Wellington property (29% of residential sales in 1Q15). On a QoQ basis, the weak earnings came due to a 28% residential sales plunge, a 3.7% slimmer GM and a 1.3% higher SG&A/sales ratio. Net gearing was stable QoQ at 0.7x at end-March. 

Outlook 

Earnings for 2Q15 are expected to leap YoY but improve only slightly QoQ. Residential sales are expected to expand YoY and QoQ on the transference of the Wellington, Premier@Asoke and Park Ekamai-Thonglor condo units. In addition, Prima Riva (Bt5.5bn; fully booked) will start transferring in 2Q15. Top-line expansion will outweigh poor-GM for the Wellington (the proportion of that property’s income to total revenue should decline QoQ for 2Q15). 

What’s changed?  

Profit for 1Q15 comprises 18% of our FY15 forecast and that of the street, as we leave our model unchanged at 13% earnings growth for FY15 and flattish for FY16. The presales backlog of Bt39bn secures 90% of our assumption and 45% for FY16. We have priced in weak GM from the Wellington property to our model, as we assume a 0.9% YoY slimmer residential GM for FY15. If SPALI were to sell the office building it owns in the Philippines, there would be scope for upside to our earnings model.

Recommendation 

SPALI trades at a PER of 6.3x for FY15, below 6.5x of its FY06-14 mean and representing the cheapest PER of our ResDev coverage. Cheap valuations are priced in the expectations of earnings growth deceleration in FY15-16, in our view. In June 2015, anticipation of the successful launch of two sizable condos (Elite Surawong, Bt2.2bn in total project value and Loft@Taladplu (BTS) Station, Bt2.5bn) will be a key catalyst behind the share price. We reiterate BUY rating, with a YE15 target price of Bt23 (cut from Bt28). We have derated our target PER to 8x (from 9x) to reflect flattish earnings for FY16, pegged to 0.5SD above its FY06-14 mean.