Sansiri Public Co

Sansiri Public Co Plc (SIRI)

SIRI is likely to post THB560m in net profit in 2Q13, up favourably by 24% yoy, following THB86m net losses in 1Q13. Solid SDH/TH sales, higher condo sales and a narrower revenue-and-SG&A mismatch were probably key drivers. 2H13 is even brighter, thanks to solid backlog. 1H13 net profit is likely to form 12% of our old FY13 estimate. We cut FY13-15 EPS estimates by 6-8% and our target price by 7.7%, still based on 14x CY14 P/E (2.5 s.d. above the 5-year mean). Reiterate Outperform. Valuation is cheap at 7.4x CY14 P/E with an attractive 6% yield. Catalysts are stronger 2H13 and solid earnings visibility for FY14.  
What Happened
We estimate SIRI’s 2Q13 net profit rose 24% yoy to THB560m, recovering from a net loss of THB86m in 1Q13. Key drivers were: (1) buoyant sales driven by both SDH/TH (+29% yoy, +44% qoq) and condos (+49% yoy, +52% qoq), (2) a sustainable gross margin in a range of 32-33%, and (3) a narrower revenue-and-SG&A mismatch. If our expectation materialises, 1H13 net profit will be THB473m (12% of our old FY13 forecast).    
What We Think
EPS cuts mainly reflect higher-than-expected SG&A and higher interest expense on debenture issues. We continue to like SIRI despite concerns about faltering domestic consumption and its negative impact on transfer targets. On top of SIRI’s rejection rate of 7-10% (after diversification into the lower-end segment in 2011; previously 1-3%), we believe that SIRI’s condos are in fairly superior locations, it has reputable quality products and after-sales service and a strong secondary market to support resale prices, which are key supports for SIRI’s resilient customer demand. In 2011, SIRI was the only one among the top seven developers that met its original 2011 revenue target; the others fell short. Notably, consumer confidence and affordability were badly hit during the flood crisis that year. We firmly anticipate a stronger 2H13, underscored by solid quality backlog. Our FY13 revenue is 79% locked-in while FY14 and FY15 is 49% and 28% in the bag, respectively.    
What You Should Do
Downside risk is limited, prompting us to hold the view that its risk-reward justifies long-term investment.