Pruksa Real Estate

Pruksa Real Estate Plc (PS)
 

Undershot our estimate: PS reported a 4Q11 net profit of Bt338m, down by 68% YoY and 55% QoQ. The result was 15% below our estimate, due to weak operating margin, but 23% above the consensus (on higher revenue than expected. Stripping out a Bt30m deferred tax provision and a Bt76m land impairment, core profit would be Bt460m (down sharply YoY and QoQ).
Results highlights: 4Q11 earnings were dragged down by a revenue contraction (Bt4.7bn—down by 33% YoY and 28% QoQ), due to slow presales and transference during the flooding. The Seed Memory Siam condo contributed 24% of income for the quarter. Housing GM declined from 38.7% in 4Q10 to 35.1% in 4Q11 (34.6% in 3Q11). The SG&A/sales ratio remained high at 20%, due to flooding protection expenses. The effective tax rate was also high at 35% (versus a historical rate of 25%), due to non-tax-deductible expenses during the quarter. The net gearing ratio inched up QoQ to 1.1x at YE11.
Outlook: We anticipate that 1Q12 profit will be weak YoY but stronger QoQ. All five prefabrication plants were shuttered for a month during the flooding, due to a shortage of construction materials, but the machinery wasn’t damaged. The plants resumed running in Jan. The huge low-rise backlog of Bt18bn at YE11 will support 1Q12 earnings.
What’s changed? We maintain our forecast unchanged. Current presales (net of cancellations) secure 75% of our FY12 revenue projection. 
Recommendation: The market may be concerned about slow presales (a slow post-flooding demand recovery for low-rise houses), a high rejection rate in 1Q12 for The Seed Atom condo (the design was changed to a low-rise building from a high-rise, due to EIA restrictions) and a tighter balance sheet. But if the share price dips it will present an opportunity to accumulate the stock. PS remains our favorite long-term ResDev pick, as market expectations for its earnings outlook are unjustifiably modest. At an FY12 PER of 9.1x, the stock is the most deeply discounted to its long-term mean (10.2x) of any first-tier developer. We maintain a YE12 target price of Bt16, pegged to a PER of 10x.