Asian Property

Asian Property Plc

In line with our estimate, but 28% below the expectation of the street
AP reported a 1Q13 net profit of Bt223m, down by 46% YoY and 76% QoQ. The result was in line with our estimate, but 28% below the consensus number, due to disappointing sales and slimmer margin than the street expected. 
Results highlights
The earnings dive was due to a residential sales contraction (down by 10% YoY and 58% QoQ) and slimmer residential GM (down by 1.9% both YoY and QoQ). Note that AP set a high base for revenue and profit in 4Q12. In 1Q13, the residential sales breakdown was 71% low-rise and 29% condo (no new condos start transferring during the quarter). The remaining units of The Address Sathorn 12 comprised the key condo revenue contributor for the quarter (19% of residential sales).
GM for residential sales fell from 35.1% in 1Q12 to 33.2% in 1Q13 because the proportion of fat-GM condo revenue dropped. In 1Q13, low-rise GM was 31.5% (down 0.6% YoY), while condo GM was 37.5% (39.9% in 1Q12). The SG&A/sales ratio rose from 19% in 1Q12 to 22.9% in 1Q13, due to a lower top-line. The net gearing ratio increased from 0.9x at YE12 to 1.1x at end-March.
Outlook
AP is expected to post a QoQ core profit jump for 2Q13 (and modest YoY growth) after lagging its peers in 1Q13. Residential sales in 2Q13 are expected to jump by 10% YoY and 50% QoQ, driven by the start of transference of two condos—Rhythm Sukhumvit 50 (Bt2.7bn; fully booked) and Aspire Rama IV (Bt2.7bn; 83% booked). GM in 2Q13 should fatten QoQ, due to a greater proportion of high-GM condo revenue. Note that AP will restate its 2Q12 core profit from Bt541m to about Bt490m on an accounting change for deferred tax.
What’s changed? 
Our projection stands unchanged, as the presales backlog at end-March of Bt28bn, secured 76% of our FY13 revenue forecast, 38% of FY14 and 32% of FY15. 1Q13 will prove to be the weakest earnings quarter of the year (9% of our FY13 forecast; 8% of the consensus). 
Recommendation
We maintain our TRADING BUY rating on AP, premised on a very low FY13 PER of 9.4x (the second-cheapest in the sector after ANAN). The bad news about the delayed transference of The Address Sathorn 12, the low take-up rate for the high-end condo, Galerie rue dee 39, and one-time cancellations at The Aspire Ngam Wongwan are already priced in. The risk-reward proposition is now attractive—QoQ profit growth in 2Q-4Q13. AP’s FY13 PEG is 0.6x against a 0.8x peer mean. Our YE13 target price is Bt10.80, pegged to a target housing PER of 12x (2SDs above AP’s long-term mean).