Supalai

Supalai Plc (SPALI)

Beat our model
SPALI reported a core profit of Bt471m for 1Q13, up 78% YoY but down 71% QoQ. The result was in 30% above our estimate, due to a 4.4% lower SG&A/sales ratio than expected, but it was in line with the consensus model.
Results highlights
The strong YoY earnings growth was driven by housing sales of Bt2bn, up 35% YoY, good SG&A expense management and a lower effective corporate tax rate of 19%, down from 24% in 1Q12. The SG&A/sales ratio dived from 18.5% in 1Q12 to 13.8% in 1Q13. The housing revenue breakdown for the quarter was 69% low-rise, the remainder condo. Note that condo sales comprised 40% of 1Q12 revenue and 69% of 4Q12 income. Note that no new condos started transferring in 1Q13; SPALI recognized sales at two condos that were finished in 4Q12—Supalai Park Asoke Ratchada and Park@Downtown Phuket.
Housing GM dropped from 42.5% in 1Q12 and 46.1% in 4Q12 (its highest level since 2004) to 40.6% in 1Q13, as condo sales made up a smaller proportion of revenue (condo GM is fatter than the GMs of low-rise categories). Net gearing was stable at 0.3x at end-March. 
Outlook
We expect SPALI’s 2Q13 profit to rise YoY but fall QoQ. Most of the condo inventory was transferred in 1Q13 and no new high-rise projects are scheduled to start transferring in 2Q13. The low-rise backlog of Bt3.7bn at end-March is expected to transfer in 2Q-4Q13.
In 2H13, SPALI will start transferring three condos—Supalai Park Ratchapruek-Petchakasem (Bt1.7bn; fully booked), City Resort Ratchada-HuayKwang (Bt1.6bn; fully booked) and Premier Ratchathewi (Bt2.4bn; 80% booked). Huge transference will make for a record 4Q13 profit.
What’s changed? 
1Q13 earnings represent 14% of our FY13 forecast (and the consensus). For the time being, we maintain our model unchanged, due to clear revenue visibility—80% of our FY13 housing revenue projection is secured by presales. There is a scope for earnings upside in FY14, as the backlog already secures 73% of our revenue forecast for that year. 
Recommendation
In 2H13, the stock should significantly outperform peers, as the FY13 profit profile is back-end loaded and FY14 revenue visibility is clear. Our 2H13 earnings forecast comprises 80% of our full-year number. SPALI trades at an FY13 PER of 11.3x and a PEG ratio of 0.6x (0.8x for the sector). We have upped our YE13 target price to Bt25 from Bt22.3 by re-rating our target PER to 13x (from 11.5x) in order to factor in the clearest FY14 revenue visibility in ResDev sector (scope for an FY14 forecast upgrade).