Ananda Development

Ananda Development Plc (ANAN)

Below our estimate
ANAN reported a net profit of Bt5m for 1Q13, a turnaround from a net loss of Bt258m for 1Q12. The result was below our estimate of Bt20m, due to higher-than-expected SG&A expenses. A QoQ comparison isn’t appropriate, as ANAN restated its 4Q12 numbers on an accounting policy change for deferred tax. Excluding a Bt57m non-cash Purchase Price Allocation (PPA) expense for the quarter, core profit would be Bt61m versus a Bt216m core loss for 1Q12.
Results highlights
The YoY bottom-line turnaround was led by condo revenue expansion, a fatter GM and lower expenses. Condo revenue jumped 190% YoY to Bt1bn, driven by recognition of sales of remaining units at the Morph 38 project. Condo GM was a hefty 39.8% in 1Q13 versus 34% in 1Q13. Interest expenses dived 92% YoY to Bt8m following a post-IPO debt repayment. The SG&A/sales ratio fell to 32% from a vertiginous 76% in 1Q13). Thus, core margin was 5.9% against negative core margin in 1Q12. PPA increased from Bt43m in 1Q12 to Bt57m, due to greater condo transference tied to “leveraged buyout” projects. ANAN reported a net-cash position for end-March of Bt5.1bn. 
Outlook
The firm is likely to report shallow red ink for 2Q13 (a net profit of Bt37m for 2Q12), due to a revenue contraction and heavy marketing expenses tied to condo launches in June (for which revenue will be realized in FY14 onward). In June, ANAN plans to launch Ideo (Bt2.1bn) near a BTS extension line, the second phase of Elio and the seven Atoll low-rise projects. In 2Q13, residential revenue is expected to plunge by 54% YoY and 16% QoQ. Sales will recover both YoY and QoQ in 3Q13 and we expect record earnings for 4Q13.
What’s changed?
We maintain our projection unchanged—an FY13 net profit of Bt1.4bn, a turnaround from a net loss in FY12. The presales of three Ideo Mobi condos (Phyathai, Sathorn, and Sukhumvit) secure 73% of our FY13 revenue forecast.
Recommendation
We reiterate our BUY rating on ANAN with an unchanged YE13 target price of Bt5.5, pegged to a target PER of 12x (a discount to the sector mean). The stock currently trades at an FY13 core PER of 9.4x (a net PER of 10.1x), the lowest of the Residential Developer stocks we cover. The forward catalysts will be presales growth in 2H13 (60% of our FY13 presales target of Bt15bn) and a record 4Q13 profit (80% of our full-year forecast). A new business partner would also catalyze the share price and boost long-term earnings growth sustainability.