Quality Houses

Quality Houses Plc (QH)
 

Above our estimate: QH reported a 4Q11 core profit of Bt49m, down by 83% YoY and 82% QoQ. We had expected a core loss—housing revenue was higher than expected. Including the key extra item, a Bt52m marked-to-market gain on QH’s holding in LHBANK, net profit would be Bt107m, down by 74% YoY and 61% QoQ.
Management announced a cash DPS of Bt0.00926—a miserly 0.5% yield and far below the assumptions of ourselves and the consensus (Bt0.05-0.06)—and a dividend stock at a ratio of 12:1. XD on May 9; payment on May 21.  
Results highlights: The 4Q11 earnings contraction was due to weak housing sales (Bt1.5bn, down by 49% YoY and 45% QoQ because sales and transference dived during 4Q11 flooding). Low-rise projects accounted for 75% of income with condos (Q.Langsuan and Casa Sathorn-Taksin) making up the balance. Although housing GM rose YoY and QoQ (29% in 4Q11 versus 28.2% in 4Q10 and 28.0% in 3Q11), it was still the slimmest in the sector. Equity income from affiliates remained strong—growth of 28% YoY and 25% QoQ, led by HMPRO and LHBANK.
Outlook: We expect 1Q12 profit growth, due to the very low bases set by 1Q11 and 4Q11. Housing revenue should pick up. Housing GM will remain under pressure (28-29%), but fatter than the 26.8% posted for 1Q11.
What’s changed? For the time being, we maintain our FY12 core profit forecast at Bt890m—we expect a post-flooding housing sales recovery. But EPS will diminish 7.7% with the stock dividend. The street’s FY12 net profit forecast of Bt1.2bn (up 42%) is too bullish, we believe. The firm’s backlog secures 23% of our FY12 revenue forecast and 16% of FY13.
Recommendation: QH might not be the most dynamic pick in the sector at the moment, but downside risk to its stock price is limited, as the break-up value of its investments—HMPRO, LHBANK and QHPF—currently exceeds its market capitalization. We maintain our HOLD rating with a YE12 target price of Bt1.70, based on a sum-of-the-parts valuation—a target housing PER of 6x (1SD below its FY05-11 average) and Bt1.72/share of investment value (25% discount to market value).