AP (Thailand)
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Entering a high season for good news
We maintain our Outperform rating on AP with an unchanged 2016 target
price of Bt8.20. A number of new projects planned to open in 3Q16 should
support a strong recovery in presales in the quarter, while nine condominium
projects due to be completed during Sep-Dec 2016 will clearly lift AP’s
quarterly earnings to a record high level in 4Q16. The grand opening of
Rhythm Ekkamai (Bt2.7bn) on Sep 3 will be the starting point for this flow of
good news. Robust 2017E earnings growth of 25%, thanks to the great
contribution from condominium projects developed under its JV, as well as
progress on low-rise projects, will provide further support for our positive
view of the stock.
Investment highlights
- Eight new low-rise projects and two new condominium projects to boost
3Q16 presales. After opening only four low-rise projects worth Bt2.5bn and two
condominium projects with a total value of Bt3.5bn in 1H16, AP is planning to
launch eight low-rise projects valued at Bt7.2bn and two condominium projects
worth Bt9.1bn in 3Q16. A big presales recovery is thus more than likely in 3Q16.
Assuming a 50% presales rate at the two new condominium projects and Bt4.5bn
at the low-rise developments, we see AP’s 3Q16 presales surging above Bt9.0bn,
up from Bt6.5bn in 2Q16 and Bt5.0bn in 3Q15. We therefor expect 9M16 presales
to account for 67% of AP’s full-year target of Bt31.0bn.
- Nine condominium projects to drive record high quarterly earnings in
4Q16. In addition to the nice expansion in low-rise revenue supported by the new
projects mentioned above, AP has nine condominium projects worth a total of
Bt22.0bn (Bt9.3bn developed under JVs) scheduled to be completed from late
September. These projects will clearly generate significant amounts of revenue and
earnings in 4Q16. Based on our current estimates, AP should be able to realize
more than Bt9.0bn and Bt1.4bn as revenue and earnings in 4Q16, which will be
record highs for a quarterly reporting period.
- JV projects to enhance 2017 earnings growth visibility. We expect AP’s
earnings will rise strongly by 25% in 2017. Apart from continued low-rise revenue
growth, equity income should rise robustly. Our expectation is based on five
condominium projects that are planned to be realized next year (three of them
should start rights transfers from 4Q16). Due to the revenue and expense mismatch
of these projects, their NPMs in 2017 will be higher than the normal rate of 13-
15%. We expect AP’s equity income supported by JV projects will thus rise to about
Bt1.0bn in 2017 from only about Bt200mn in 2016.
- Rhythm Ekkamai and Life ๑Wireless to kick off in September. We believe
the presales performance of Rhythm Ekkamai (Bt2.7bn, 326 units) and Life ๑
Wireless (Bt6.4bn, 1,344 units), which are set to launch on Sep. 3 and the end of
September, will mark the start of a period of positive news flow for AP. The
company expects presales at launch for these projects at 50% and 60%,
respectively. A strong location (very close to Major Cineplex Ekkamai and BTS
Ekkamai) is the key selling point of Rhythm Ekkamai. Meanwhile, location (700
meters from BTS Ploenchit and Central Embassy) and attractive selling price per
sq.m. compared with other projects in the nearby area are the key selling points of
Life ๑Wireless.
Valuation
- We maintain our Outperform rating for AP with an unchanged 2016 target price of
Bt8.20. We like AP’s solid earnings growth story as well as the short-term positive
catalysts from both presales and earnings. The key risk factor for the stock is unsold
completed units, which may rise further in 4Q16 when Aspire Ngamwongwan,
Aspire Wuttakard, Aspire Sathorn-Taksin Phase 3 and Vittorio are due to be
finished. However, we believe this risk is manageable and should fall over time.
