Supalai

Supalai Plc (SPALI)

SPALI’s solid sales backlog suggests rising revenue visibility beyond the expected softer FY13. Though we are now less negative on SPALI, we continue to rate it an Underperform as earnings upside is limited and could be further crimped by its overseas expansion plan. After evaluating SPALI’s latest update, we cut FY12-14 EPS by 9-18% for lower sales, narrower gross margins and higher SG&A. However, due to high revenue visibility for FY14-15 and our valuation rollover, we raise our target price by 18%, based on 8.5x CY14 P/E (1.5 s.d. above 5x 6-year historical average due to superior margins) instead of 7.5x CY13 P/E. 

What Happened
The latest update suggests that SPALI should meet its FY12 presales target of THB21bn as 10M12 pre-sales (including subsidiaries) came in at THB15.8bn or 75% of the target. The
balance will be filled by three new condo launches worth THB4.7bn and SDH/TH new presales. SPALI retained its FY12 revenue target of THB13.5bn even though 9M12 came in at just 42% of the full-year target. It now has a backlog of THB28.6bn, which will be booked in 4Q12-FY15.
SPALI is also planning to invest in residential investment properties in ASEAN countries in anticipation of ASEAN Economic Community (AEC) in 2015. But details were not disclosed.

What We Think
Although 9M12 sales and the 4Q12 backlog combined make up 95% of our new FY12 revenue estimate, the risk of a revenue shortfall cannot be ruled out as SPALI’s record quarterly
sales were just THB4.7bn in 4Q10. SPALI has to post another THB7.4bn to meet our FY12 estimate of THB13.1bn, which is more conservative than SPALI’s target of THB13.5bn. The company’s relatively high inventory of finished unsold units, the bulk of which are condos
worth THB2.1bn, is a concern as these units have been unsold for a few years, which begs the question of whether they can be sold without big discounts and margin pressure.

What You Should Do
We believe that the share price has priced in the good news but not the softer FY13 outlook and distorted gross margins from sustained high inventory of unsold units. This suggests limited upside. We also think that SPALI’s overseas investment plan could be a drag rather than a boost for revenue. We prefer PS and SIRI