Asian Property Development

Asian Property Development Plc (AP)
Beat consensus estimates: AP reported a 1Q12 core profit of Bt417m, up by 269% YoY and 19% QoQ.  The result was in line with our estimate, but 37% below the consensus (better housing revenue than modeled). Net profit was Bt421m, due to a Bt5m gain from selling PREB stock (AP reduced its stake from 18.01% at YE11 to 15.95% at end-March).
Results highlights: The strong 1Q12 result was driven by housing revenue (Bt3.1bn, up by 44% YoY and 12% QoQ) and a lower effective tax rate (16% in 1Q12, due to a mismatch between downpayments and trans-ference of The Address Sukhumvit 28—starting 4Q11, tax was paid on downpayments for units that hadn’t transferred). The 1Q12, housing revenue breakdown was 61% low-rise and 39% condo (mainly The Address Sukhumvut 28, which comprised 24% of 1Q12 income). Housing GM dipped from 35.8% in 1Q11 to 35.1% in 1Q12 (GM of 39.9% for condos and 32.1% for low-rise). The net gearing ratio increased to 1.21x at end-March from 1.29x at YE11.
Outlook: We anticipate YoY and QoQ growth in 2Q12 earnings. The effective tax rate will remain low with the ongoing transference of The Address Sukhumvut 28 (30% of total project value should transfer in 2Q12). The Address Asoke-Petchaburi (Bt3.4bn; 99% booked) will start transferring in June.
What’s changed? We have revised up our core profit forecasts by 4% for both FY12 and FY13 to factor in the record presales backlog and a low effective tax rate in 1H12. Our housing sales assumptions rise by 3% for FY12 and 7% for FY13. The end-March presales backlog of Bt29bn secures 87% of our FY12 revenue forecast and 52% of FY13. We conservatively assume that housing GM will fall 3.9% YoY to 33.8% in FY12, due to a diminished proportion of condo sales in the revenue mix (from 53% in FY11 to 48% in FY12).
Recommendation:  The stock deserves to trade at a premium to its long-term mean PER because of record FY12 presales. AP’s current price implies PERs of 10.1x for FY12 and only 8.4x for FY13 (its FY05-11 mean is 8.5x). We have revised up our YE12 target price to B8 (from Bt7.40) to factor in our earnings forecast upgrade—a target housing PER of 12.0x (1SD above its FY05-11 mean) and Bt0.05/share of investment value in PREB.