AP

AP Plc

 

YTD, AP shares have gone up 20% and outperformed the SET by 10% - but valuation still is cheap at -0.25 SD for PER and -0.50 SD for PBV in 2016. With good earnings growth of 21% this year and 25% next year, valuation goes down to just 5.4x PER and 0.9x PBV in 2017. There is only a tiny downside risk of 1% of 2017F from the new Land and Building Tax Bill. We reiterate BUY with unchanged TP of Bt8.00/share.  

 

Low-rise presales on track; 10% target growth achievable. In May, AP’s low-rise presales were Bt1.3bn and brought 5M16 presales to Bt5.3bn, accounting for 36% of its full year target. We were impressed to see presales in May 24% higher than the monthly average of Bt1.0bn during the government stimulus program (October 29, 2015-April 28, 2016). Behind this was good response to recent launches of Centro Westgate (13% sold) and continued good presales of inventory. This eases concerns and makes it more likely it will reach its full year forecast. Over the remainder of the year, it will launch 13 projects with sales value of Bt13bn.  

 

New launches will bulk up condo presales. Condo presales in 5M16 are Bt3.3bn, just 20% of its full year target. However, momentum picked up in May and we believe will continue to strengthen through 3Q16, given the recent sell-out of the Bt2.2bn Life Sukhumvit 48 in early June and more launches through the quarter: a Bt6bn project on Wireless Road in August, a Bt3.5bn project on Sukhumvit 39 and a Bt2.6bn project on Ekamai plus an undisclosed project valued at Bt6bn. The pre-completed Sukhumvit 39 will supply income in late 2016-2017 and the rest in 2018-2019. 

 

Maintain 21% growth in 2016 and 25% in 2017. Profit sharing from JVs will underwrite earnings growth this year and next. AP’s own low-rise revenue will grow 10% in 2016F and 15% in 2017F and condo revenue will expand via its JVs, with the first profit at ~Bt90mn this year and Bt700mn next year, turning around from a net loss of Bt208mn last year. Current backlog of Bt13.2bn secures 60% of our 2016 and 11% of 2017, while JV backlog is Bt20.3bn, securing 100% of 2016 and 84% of 2017. 

 

Minimal impact from Land and Building Tax Act. The cabinet recently passed the draft Land and Building Tax Act, which will collect property tax at a stepped rate based on property value; it is to take effect on January 1, 2017. The bill will replace the Property and Land Tax Act B.E. 2475 and Local Maintenance Tax Act B.E. 2508 which assess property tax based on rental revenue. At just 0.05% for three years for work-in-progress, the additional tax expense is tiny at less than 1% of our 2017F. 

 

Maintain BUY. Despite a 20% rise in share price YTD and a 10% outperformance of the SET, at last close, AP is still trading at an undemanding valuation of 6.7x PER and 1.0x PBV of 2016, about -0.25 SD and -0.50 SD respectively

 

to its historical pattern. We view this as unjustified given the favorable growth ahead. We reiterate BUY with unchanged PT of Bt8.0/share based on 1.2x PBV of average 2016-2017.