Residential Property

Residential Property

Total new supply shrank for the second year in 2015, down 9% YoY in terms of units but up 21% YoY in terms of value thanks to more high-end products. Aggregate presales of the top seven developers rose 17% YoY driven by favorable condo presales growth of 25% and sustainable growth of low-rise presales at 12%. SIRI led the pack, with LH and LPN at the tail end. We estimate 2016 presales and revenue growth at 14% each. We like LH for its good two-year outlook. 

New supply down 9% in terms of units but up 21% in terms of value. As usual, December was a quiet month for new launches because of the several holidays. AREA reports new supply shrank to a low of 3,796 units (worth Bt10.6bn), -39% YoY and -58% MoM. The major launch was SC’s high-end SDH Grand Bangkok Boulevard Sukhumvit (Baring-Laselle). This will be a major competitor to LH’s Nantawan Bangna (Bangna-Trad km 7). 2015 is the second year in a row that new supply has come down, by 9% YoY to 101.0K units (low-rise -15% and condo -5%), but up 21% YoY to Bt397.8bn (low-rise +13% and condo +28%). The sharp growth in value terms reflects a shift to high-end housing, with average unit price up to Bt3.9mn in 2015 from Bt3.0mn in 2014.   

Aggregate presales grew 17% YoY for the top seven developers (AP, LH, LPN, PS, QH, SIRI and SPALI) to Bt184.9bn, reaching ~95% of their targets. The major component of the good growth was the 25% growth in condos off 2014’s low base plus stable low-rise presales growth of 12%. The exceptional presales growth seen at SIRI of +225% reflects the contraction in condo presales in 2014; AP’s grew 24%, PS +20%, SPALI +19% and QH +3%. Only LH and LPN saw presales fall, at 24% and 15% respectively, due to fewer new launches for LH and sluggish low-end condo demand for LPN. 

High cancelations/rejections in December. Both PS and SIRI saw a contraction in condo presales in December (Bt1.5bn and Bt590mn respectively) with LH and QH bringing in presales of less than Bt100mn. This was due to some housecleaning, removing from the books some long delayed transfers of completed projects. This led to a cancelation/rejection level of 10-15% of project value, which is not alarming. The climate for resale of the units is good, backed by the government incentive that will cut transfers and taxes until April 28, 2016.    

2016 outlook. Based on preliminary information, aggregate target presales this year posit a 17% YoY growth to Bt215.7bn, supported largely by SIRI’s high target of 48% growth, followed by LPN’s 21% target; the rest expect growth of ~10%. Our forecast is more conservative with overall presales growth of 14% to Bt211.2bn. On the revenue side, we look for 9% YoY growth to Bt203.8bn with core profit growth of 14% to Bt33.0bn backed by improved gross margin, sustainable SG&A expense/revenue and higher profit contribution from JV projects.  

Top picks: LH. We like LH for its turnaround story in 4Q15 and its growth outlook for 2016 and 2017. Adding to its attraction is the one-time gain of ~Bt800mn from an asset spin-off in 4Q15.