Residential Property

Residential Property 

 

Strong pre-sales in April-May for the top seven plus several condo launches in June suggest presales will jump QoQ in 2Q15. With more launches HoH in 2H15, presales will continue to step up to peak in 4Q15. We see both presales (45:55) and revenue (40:60) as backloaded. Demand continues solid but selective. We prefer AP and SIRI.   

 

April-May 2015 presales momentum holding up. Presales for the top seven developers reached Bt31.7bn (51% condo and 49% low-rise) in April-May, +26% YoY. This came largely from SIRI’s fire sale of its The Line and The Monument. Presales of low-rise products were stable at 3% growth YoY. This brought total presales in 5M15 to Bt69.7bn, +30% YoY, reaching 33% of their full year targets. Of the seven developers, presales for PS, SIRI and QH as a proportion of target in 5M15 exceeded the average.  

 

Strong pre-sales growth in 2Q15F highly likely. The Bt31.7bn in presales for April and May alone is equivalent to 83% of the presales in 1Q15. If we add in the four condos valued at Bt9bn launched last weekend by LPN, PS and SPALI, which drew in combined presales of Bt3.2bn, plus presales of five condos worth Bt12.5bn for AP that will be launched on June 25-28, 2Q15 presales are highly likely jump QoQ. 

 

Backloaded pre-sales stand. We maintain our view that overall housing demand will grow by 15-20% with aggregate presales of the top seven growing at a faster pace of 30% due to their strong presence and low-base effect as a consequence of the large cancelations and rejections last year. Presales in 2H15 is expected to be higher than in 1H15 (45:55), driven by more condo launches. In general, the launch of a condo will boost presales immediately after the launch as it absorbs pent-up demand in the area, with real demand for low-rise driven by sale of stock rather than new projects. The low interest rate environment plus sustainable Consumer Confidence Index suggests housing demand is holding up, but is selective to project and location rather than across the board. We believe demand will shift back to mid- to low-end housing from 1H15’s weighting towards the high-end segment. Provincial demand is unlikely to recover soon. 

 

Sequential revenue growth. Revenue recognition for the top seven will experience sequential growing to peak in 4Q15 with 40% of revenue booked in 1H15 and 60% in 2H15. This is backed by current backlog of Bt202bn and a number of condos being completed in 2H15.  

 

Risks/concerns. Based on the new GDP base, household debt/GDP stood at 79% at end-2014. Though considered high, it is growing at a slower pace. Despite lower building material costs, housing prices will continue to rise, driven by a rise in land price of ~10% p.a. on average. In our view, this will reduce buying affordability especially for those in the low-end segment. Margin pressure is another concern as developers use pricing to sell slow-moving stock. Postponement of launches would also lead presales to miss targets. In our view, this risk is present for LPN and PS. 

 

Sector picks: AP and SIRI. AP will achieve its presales growth target of 25% this year, with profit growing at a higher pace during 2015-2017. Strong presales and revenue in 2Q15 will be near term catalysts. We select SIRI for its strong presales and revenue in 2Q15 which the market has yet to factor in its share price.