Sansiri

Sansiri Plc (SIRI) 

Since May SIRI’s share price has fallen to where it is now trading below book value – not warranted against the solid presales in May and July. We expect 3Q15 revenue to be the year’s highest with presales highest in 4Q15. These should move the price up from an unjustifiably low 0.8x PBV of 2015 now. We roll TP to mid-2016, leaving it unchanged at Bt2.4/share, attractive TTR of 59%, with good yield of 7.2%. We BUY.   

Presales on track. SIRI is poised to achieve its challenging presales target of Bt33bn (a jump of 270% YoY) this year backed by strong presales in 8M15 and several launches in 4Q15. In 8M15, presales were Bt19.4bn, +225% YoY, equal to 59% of its 2015 target. Of this, Bt12.1bn (63%) was for condos, up from a negative Bt977mn, on good response to 

Bt9.3bn in launches: the Bt5.8bn 

 

THE LINE Jatujak-Mochit

 

, the Bt2.0bn 

 

THE LINE 

 

Sukhumvit 71

 

 and the Bt1.5bn 

 

The Monument Sanampao

 

. Low-rise presales were 

 

Bt7.3bn (37%), up 4% YoY despite only three launches (Bt5.4bn).  

 

Ten new launches = strong presales in 4Q15. Ten new launches valued at a total of Bt21.4bn are planned for 4Q15: five condos (Bt13.9bn) and five low-rise (Bt7.5bn). Three of the five condos are developed under the JV BTS Sansiri Holding. The JV projects are the Bt2.8bn 

 

THE LINE Ratchathewi

 

 and the Bt3.5bn 

 

THE LINE Phahonyothin 

 

Park

 

 (October launch) and one large Bt5.1bn high-end project (November). SIRI expects good response and for presales to beat 2Q15’s Bt11.8bn. 

 

Earnings fine-tuned. Fine-tuning lowers our forecast by 5% for 2015 and 3% for 2016. In 2015F, core profit growth is put at 14% to Bt2.9bn (EPS Bt0.20) on 26% revenue growth and 18% SG&A expense/revenue, down from 20% and helping offset the 360bps narrowing in margin to 30%. We forecast good 27% growth to Bt3.7bn in 2016 on a recovery in margin of 270bps to 32.7% with lower revenue from low-margin projects and stable SG&A expense/revenue at 18%. Current backlog of Bt35.1bn secures 95% of 2015F and 33% of 2016F. Based on scheduled backlog transfers, 3Q15 will be this year’s best. Most of backlog to be transferred is outside Bangkok and management sees little risk of cancelation given the high deposits at 15% for Thai buyers and 30% for foreign. This is in line with the rising trend of received deposits/backlog which solidifies backlog quality. We are now 10% higher than consensus for 2015F and 4% for 2016F.   

 

Profit from JV in 2017. We expect the JV to contribute a net loss of ~Bt40mn in each of 2015-2016, before contributing a profit of Bt440mn (EPS Bt0.03) in 2017. The loss in the first two years reflects an accounting mismatch of expenses and revenue, since expenses are booked as they occur and revenue when deeds are transferred. This means that more launches hurt P&L in the short-term but help in the longer-term.  

 

Cost cutting paying off. Over the past year, SIRI has cutting costs and this chopped SG&A expense/revenue to 18.4% in 1H15 from 20.1% in 2014. Further benefit from this program is upside risk to our forecast. The program includes: 1) changing business unit structure to geographical, boosting synergy and efficiency, from hybrid (geographical and product); 2) optimizing brands (from 23 to only 4 for condo – THE LINE, The Monument, The BASE, and Dcondo); and 3) lower promotional costs (billboard sharing, downsizing “Life Comes Home” event, lower CRM expense).