Supalai

Supalai Plc

Investment thesis

The low valuations, trading at FY16 PER of 6.8x (near its 10-year mean), would mitigate a sharp price shortfall. However, FY16 performance is quite far from promising with single-digit growth in presales and earnings. Most importantly, a new norm for residential GM under 40% is disappointing the market. Thus, we have downgraded our rating to HOLD (from TRADING BUY), at a YE16 new target price of Bt20 (from 21.50) to reflect a FY16 earnings cut and a target PER derated to 7x (from 7.5x) pegged to its FY06-15 mean incorporated with unattractive profit growth of 6% for FY16. 

Met FY15 presales target but missed revenue 

FY15 presales were Bt23bn (50% each in low rises, condos; 79%, Bangkok, 21% provincially), up 19% YoY, which is in line with the company budget boost by an aggressive launch value growth of 24% YoY to Bt34bn (54% low rises, 46% condos). FY15 low-rise presales jumped 38% YoY, while condo presales rose 4% YoY. FY15 residential revenue is suggested to reach 17% YoY to Bt21.3bn, but the number will miss the Bt22bn target. 

New norm of GM below 40%

We anticipate residential GM of 37.5% for FY15, down 4.3% YoY, dulled by poor-GM from cost overrun at Wellington condo (18% of FY15 revenue) and intense competition. Despite less Wellington revenue contribution in FY16 (at 4%), residential GM is expected at 38% in FY16, below its 42% historical 10-year mean due to product mix—higher low-rise revenue, on lower GM than condos (37-40% low-rise GM against 39-42% for condos). Its low-rise sales portion will jump from 40% in FY15 to 50% in FY16. 

Rocky road for 2016—diminished earnings forecast

It will be a tough year for SPALI, as condos scheduled for completion dip 1% YoY to Bt9bn by value. With margin risk, we cut our core profit forecast 7% to Bt4.6bn for FY16, implying unattractive earnings growth of 6%. SPALI set a conservative business plan for FY16, with launches of Bt37bn (low rises, 51%; condos, 49%), up 8%. Its presales target is Bt24.5bn (low rises, 55%; condos, 45%; Bangkok, 75% provinces 25%), up 6%. Low-rise and condo presales growth target is 11% and 2%, respectively. FY16 residential revenue target growth is only 3% YoY to Bt22bn that 62% secured by presales backlog at YE15. GM is guided under pressure. 

Moderate 4Q15 earnings outlook

Despite strong 4Q15 presales (Bt9.6bn, a jump of 65% YoY, 89% QoQ), core earnings for 4Q15 will lag its peers on YoY slippage for SPALI against both YoY and QoQ growth for the sector mean. We expect core profit to reach Bt1.5bn for 4Q15, a fall of 10% YoY due to slimmer GM (disappointing our view earlier) and the very high base set by the second best quarterly results in 4Q14. The 4Q15’s profit would jump 43% QoQ. Residential sales will be flat YoY but up 46% QoQ to Bt6.8bn. We expect final DPS of Bt0.56 for 2H15 operations, a 3.0% simple yield, XD in March.