Sansiri

Sansiri Plc (SIRI) 

Negative surprise—red ink on the 1Q13 bottom-line
SIRI reported a net loss of Bt106m for 1Q13 versus a net profit of Bt308m for 1Q12 and record earnings of Bt1.9bn for 4Q12. The negative surprise resulted from 2% slimmer-than-expected residential GM and an SG&A/sales ratio that was 5.5% above our assumption. Note that we had expected 1Q13 earnings of Bt259m and the street number was Bt277m. 
Results highlights
The loss was mainly due to high SG&A expenses in the face of flat YoY residential sales. SIRI’s SG&A/sales ratio jumped from 25.5% in 1Q12 to 33%, due to huge marketing costs tied to record presales of Bt21bn for the quarter (a mismatch between marketing expenses and revenue recognition). Also, residential GM dipped from 34.1% in 1Q12 to 32% in 1Q13, as the high GM for Quarttro condo boosted the number for 1Q12. 1Q13 residential sales comprised 53% low-rise and 47% condo.
The QoQ weakness was because of a record profit of Bt1.9bn for 4Q12. Residential sales plunged 65% QoQ to Bt4.9bn in 1Q13 versus all-time high sales of Bt14bn in the fourth-quarter. The net gearing ratio rose from 1.4x at YE12 to 1.6x at end-March.
Outlook
Management affirms that the 1Q13 loss will be followed by a bottom-line turnaround in 2Q13. Residential sales for the quarter are forecast to jump by 30% YoY and 40% QoQ. The SG&A/sales ratio will dive QoQ on a lighter launch schedule for 2Q13. SIRI’s earnings profile is back-end loaded—70% of forecast FY13 revenue is to be realized in 2H13.
What’s changed?
We have trimmed our core profit projections by 5% for FY13 and by 6% for FY14 to reflect the disappointing 1Q13 results. Our SG&A/sales ratio assumptions rise by 0.8% to 20% for FY13 and by 0.6% to 19.5% for FY14. Our core margin forecast is in line with management guidance of 11% for this year (9.9% in FY12).
Recommendation
The poor 1Q13 results are priced in—the stock price has dived 25% since peaking in March. Substantial 1Q13 marketing expenses constitute just a temporary hiccup. SIRI will report QoQ results improvements through 2Q-4Q13. Revenue visibility is clear—the presales backlog at end-March secures 69% of our FY13 top-line forecast and 44% of FY14. Our TRADING BUY rating stands with a downsized YE13 target price of Bt5.20 (down from Bt5.50), pegged to an unchanged PER of 15x. SIRI is relatively inexpensive—an FY13 PER of 11.2x and a good dividend yield of 4.6%.