Pruksa Real Estate

Pruksa Real Estate Plc (PS)
 

In line with model: PS reported a 1Q12 core profit of Bt633m, down 13% YoY but up 38% QoQ. The result was in line with our estimate and the consensus. Net profit rose a substantial 87% QoQ because in 4Q11 the firm booked Bt122m in extra expenses (a deferred tax provision and a land impairment).
Results highlights: The weak YoY comparison was mainly due to a 14% revenue drop to Bt4.7bn. On a QoQ basis, earnings rose strongly, led by dives in SG&A expenses and the effective tax rate. GM improved from 35.1% in 4Q11 to 35.5% in 1Q12.  Despite flat QoQ revenue, the SG&A/sales ratio dipped 1.6% QoQ to 18% (in 4Q11 PS booked one-time expenses related to flood protection of around Bt100m).
The effective tax rate plunged to 18% in 1Q12 from 23% in 1Q11 (35% in 4Q11) because of the corporate tax rate cut from 30% to 23% and the use of a tax shield from carrying forward the loss from PS’s investment in India. The balance sheet strengthened—the net gearing ratio dropped to 1.0x at end-March from 1.1x at YE11.
Outlook: We anticipate that 2Q12 earnings will be weak YoY but stronger QoQ with revenue led by low-rise backlog transference (Bt14bn is scheduled to transfer in 2Q-4Q12). GM will be sustained. The 2Q-4Q12 launch schedule (42 projects of 49 for FY12) comprises mainly locations that were spared from flooding in 4Q11.
What’s changed? 1Q12 profit accounts for 18% of our model (19% of the consensus), which we maintain unchanged—good core earnings growth of 20% for FY12. Revenue visibility is clear, as the presales backlog at end-April 2012 secured 92% of our FY12 forecast, 19% of FY13 and 16% of FY14.
Recommendation: PS is our favorite long-term play, as its low-rise presales will fully recover by mid 2012. Low-rise presales in March 2012 were 70% of the typical pre-flooding level. Note that demand has recovered much faster in areas that were flooded in 4Q11 than anticipated—TH presales in March bounced to 57% of the pre-flooding level and SDHs to 50%.
The stock is cheap—an FY12 PER of 9.9x (its FY05-11 mean is 10.2x). For the time being, we have a YE12 target price of Bt17.60, pegged to a PER of11x.