Residential property

Residential property

 

Investment thesis

We suggest that investors make Selective BUYs focused on the sector’s FY16 earnings growth profile. We roll over valuations to YE16, with ANAN, LH and LPN as our preferred stocks (BUYs) on the strong conviction of promising FY16 core profit growth. We place a TRADING BUY on other coverage stocks on low valuation multiples (single-digit PERs) and only short-term benefits from any government stimuli—PS is the best play for such windfalls (the biggest sector low to mid-end segment portfolio). 

Weak 3Q15 presales

Aggregate presales for 3Q15 are Bt47bn (58% low rises and 42% condos), YoY and QoQ down 24% (below our previous forecast of Bt54bn, on extremely weak condos and some disappointing low rises). Aggregate low-rise presales are to drop a slight 3% YoY and 2% QoQ to Bt28bn. Condos are expected at Bt20bn (even below quarterly presales during political turmoil in 1Q14-2Q15), down 42% YoY and QoQ. Presales winners for 3Q15 are ANAN on QoQ growth of 99% and SIRI on YoY growth of 114%.  

Poor 3Q15 sector earnings forecast

We expect aggregate 3Q15 core profit of Bt7.8bn, a drop of 16% YoY and 1% QoQ, mainly dampened by slimmer margins. Residential revenue should post a tiny drop of 1% YoY and 1% QoQ to Bt54bn, as some transfers await government stimulus measures. The GM mean is expected to dip 2.2% YoY due to intense promotions, but show a small gain 0.6% QoQ. Of our coverage, LPN is the winner for its 3Q15 core profit growth of 70% YoY and 16% QoQ.  ANAN comes second in the sector on core profit growth of 47% YoY and 181% QoQ, but net profit slippage 10% YoY on  gains from land sales in 3Q14 (none for 3Q15). AP and SIRI will realize extra gains on land sales in 3Q15. Aggregate profit for 9M15 is expected to achieve 66% of our FY15 (65% of the consensus). 

Stimulus packages will ease execution risk in 4Q15

Government stimulus measure windfalls will encourage presales backlogs to transfer on schedule for 4Q15-1Q16, but they are unlikely to push the demand upside. New homebuyers will focus on the strong conviction for economic recovery rather than the related transfer-fee savings. Thus, we reiterate our view that new launches risk postponement from 4Q15 to 2016. However, despite the potential 4Q15 launch delays, aggregate presales are expected to grow 50% YoY and 35% QoQ to Bt66bn, due to the low base set in 4Q14 and 3Q15. Sector earnings for 4Q15 will expand YoY and QoQ—with broadly strong profits for all firms except LPN. 

High earnings growth visibility in FY16 for ANAN, LPN and LH 

In FY16, ANAN and LH rank the highest in growth of condos scheduled for completion, jumping YoY from Bt6bn in FY15 to Bt15bn in FY16 for ANAN and Bt6bn to Bt19bn for LH, implying high conviction for FY16 profit growth (36% growth is forecast for ANAN and 17% for LH). Of our coverage, ANAN and LPN have the highest FY16 residential revenue visibility (backlogs secure 80% of our forecast for ANAN and 60% for LPN).