Asian Property

Asian Property Plc (AP)

Investment thesis: On Nov 28-29, We accompanied AP executives on a non-deal roadshow to Singapore, where we met with 15 foreign fund managers. The post-flooding outlook is more positive than we previously anticipated. We sensed that the investors were positively surprised by the modest impact of the inundation on AP’s performance. The clear revenue visibility secured by record high presales mitigates the risk of short-term demand weakness. Most of the questions at the meetings involved the effects of the flooding—demand and affordability, construction disruptions, extra expenses, GM and the FY12 outlook.
We have upgraded our AP call to TRADING BUY (from HOLD) with a new YE12 target price of Bt5.60 (up from Bt4.70), due to upward revisions to our earnings forecasts—up 4% for FY11 and another 13% for FY12 to fine-tune stronger-than-expected actual revenue in 4Q11-to-date. Our FY12 revenue projection is still 7% below AP’s target. The risk-reward trade-off now looks more attractive, given strong net profit growth of 33% next year and an FY12 PER of just 7.8x, significantly below its FY05-11 mean of 8.5x.
AP was one of the least-affected of the big names: The firm’s projects are largely in central Bangkok, which was spared from the flooding. Only 1.1% of AP’s total presales and 11.8% of its stock available for sale was affected by the inundation. Extra expenses related to the flooding (Bt110m in total) will be provisioned against (Bt374m was set for 3Q11), not booked to the income statement. The cost of flood protection systems for new projects will be small, so won’t affect forward GM.
Recovery mode: The bottlenecks making for slow construction will ease in January. Condo demand shows no sign of having been affected. Low-rise bookings will recover gradually to 40% (of what would have been expected in the absence of the big wet) in 1Q12, to 60-70% in 2Q12 and will normalize in 2H12.
Strong FY12 growth outlook: Management guides for revenue of Bt13.2bn for this year (down 4% YoY, as the transference of Bt3.5bn in presales was postponed from 4Q11 to 1H12), Bt17bn for FY12 (up 29%) and 20% top-line expansion in FY13. Revenue visibility is clear—the current backlog guarantees 62% of AP’s FY12 revenue target and 39% of FY13. Presales will jump from Bt15bn in FY11 to Bt20bn next year.
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