Supalai

Supalai Plc (SPALI)

Investment thesis
SPALI will outperform its ResDev peers on earnings growth leadership in FY14—it has the clearest revenue visibility of our coverage. We forecast FY14 residential income expansion of 22% for the firm (95% secured by presales) against a 16% sector mean. SPALI trades at a PER of 7.1x for FY14 and there is scope for profit upside to our forecast for next year. In the short-term, anticipation of record 4Q13 earnings should boost the price. We maintain a YE14 target price of Bt22, pegged to a PER of 10x.
Strong recovery in 4Q13 presales and profit
The firm is expected to post presales of Bt8bn for 4Q13, up 100% QoQ (but down slightly YoY from the high base set by record 4Q12 bookings of Bt8.4bn). SPALI has a big launch schedule for the quarter—two condos and four low-rise projects worth a total of Bt7.7bn (42% of FY13 launches). With regard to earnings, we expect a record of Bt1.9bn (up by 20% YoY and 400% QoQ), supported by all-time high residential revenue of Bt7bn (65-70% condos, the remainder low-rise). GM will fatten at least 2% QoQ in 4Q13 (from 40.1% in 3Q13) because of a higher proportion of condos in the sales mix.
At least 90% of the presales at City Resort Ratchada-Huaykwang (project value Bt1.6bn) and Park Ratchapruek-Petchakasem (Bt1.7bn) will transfer in 4Q13. About half of the units booked at Pemier Ratchathewi (Bt3.2bn) should be realized in 4Q13.
Strongly confident in SPALI’s FY14 revenue growth outperformance
Although management has yet to unveil its FY14 business plan, it guides that FY14 residential revenue of Bt20bn is likely (up 50% YoY).  If sales were to hit that level, there would be scope for upside to the profit forecasts of ourselves and the consensus. We currently assume only Bt15.5bn in residential revenue in FY14 (up 22% YoY); the street projection is Bt18bn (up 34% YoY). SPALI’s presales backlog due to transfer in FY14 totals Bt14.7bn (six condos). It secures 95% of our FY14 revenue forecast—the highest proportion of any ResDev stock under our coverage. Note that our sector FY14 top-line growth projection is only 16%.
Smooth quarterly earnings next year
The quarterly profit performance in FY14 will be much smoother than in FY13 because the condo transference schedule is spread throughout the year, rather than concentrated in one quarter (we expect 40% of full-year earnings to be booked in 1H14 and 60% in 2H14, versus 25% for 1H13 and 75% for 2H13). Of the six condos due to transfer in FY14, Supalai River Resort (Bt3.9bn, 95% booked) will start realizing revenue in 2Q14; Supali Park Kaerai-Ngamwongwan (Bt1.7bn, fully booked) and Supali Park@Phuket City (Bt840m, 90% booked) in 3Q14 and three condos in 4Q13—Premier @Asoke (Bt2.8bn, fully booked), Asean City Resort Songkhla (Bt1.2bn, fully booked) and Wellington (Bt4.8bn, 57% booked).