Residential Property

 

May presales were a pleasant surprise, with aggregate low-rise presales surpassing the monthly average when the property stimulus scheme was in place (November 2015-April 2016). In 5M16, aggregate presales reached 29% of developers’ full year targets (low-rise 37% and condo 20%). We expect presales to hold up in 2Q16, rising in 3Q16 to peak in 4Q16 backed by higher condo launches. LH is still top on the list. 

 

Better low-rise presales in May than expected. Despite the expiration of the government’s incentive program, low-rise presales for the top seven developers (AP, LH, LPN, PS, QH, SIRI and SPALI) surged 24% MoM to Bt9.2bn in May. This beats the average monthly presales of Bt8.8bn during the program (October 29, 2015-April 28, 2016) and was a huge surprise as we had expected a sharp drop MoM. At the same time, it is too early to conclude that the stimulus package did actually help boost demand rather than simply shift demand as buyers rushed to get in on the tax cuts as we had postulated.  

 

May outperformers: PS, SIRI and AP; underperformers: QH and SPALI. For PS, presales for low-rise grew 28% more than the average during the stimulus package, followed by SIRI (26%), AP and (24%). Underperformers were QH (46% below the average during the stimulus program) and SPALI (13% below); LH was unchanged. Low-rise presales in the 5M16 are at Bt43bn, +7% YoY, accounting for 37% of developers’ full year targets - SPALI (46%), LH (40%), PS (37%), AP (36%), QH (34%) and SIRI (29%).  

 

Condo presales improved in line with higher launches. In May, aggregate condo presales rose 15% MoM to Bt5.1bn, but plunged 58% YoY. This reflected more new launches that included condo Rangsit, dcondo Chiang Mai and Mori Haus for SIRI; Life Sukhumvit 48 and Aspire Sathorn- Taksin phase 3 for AP; and Supalai City Resort Chonburi for SPALI.

 

Condo presales in the 5M16 were Bt19.7bn, -33% YoY, only 20% of their full year target.  

 

Total presales still low, largely on fewer condos launched. In 5M16, total presales (low-rise and condos) reached Bt62.7bn, -10% YoY, or 29% of full year targets, with low rise at 37% and condo at 20%.  

 

Presales to hold up in 2Q16, improve in 3Q16 and peak in 4Q16. With more new condo launches on the way, it is likely that presales will hold up in 2Q16 and grow in 3Q16 to the year’s highest in 4Q16. A look at launch plans for six developers (AP, LH, LPN, QH, SIRI and SPALI) show that condo launches in 2Q16 have been cut to Bt16bn from Bt25bn as LH and LPN have postponed projects to 3Q16. This means the value of launches will jump to Bt20bn in 3Q16, +23% QoQ, most from LH (Bt7.2bn), SPALI (Bt4.2bn) and LPN (Bt4.0bn). In 4Q16 condo launches will further rise to Bt57bn, +184% QoQ, largely from SIRI (Bt26.9bn), AP (Bt12bn) and SPALI (Bt10.2bn). 

 

Top pick: LH. We like LH, as its earnings are turning the corner to a growth cycle in 2016-2017 with good core profit growth of 18% in 2016 and 23% in 2017. With record higher backlog, LH’s earnings visibility is improving and forecast risk is reduced. We also expect LH to book a non-cash extraordinary gain of Bt1.4bn from the LHBANK deal.