Supalai

Supalai Plc (SPALI)

Investment thesis
SPALI remains our top ResDev pick, as it has the clearest revenue visibility and the strongest FY14 profit growth profile (30% YoY) of our coverage. In the short-term, the firm will post a record 4Q13 profit.  The stock trades at a cheap FY14 PER of 7.1x with an attractive yield of 5.9% for FY14 (including an interim payout for 1H14). Our YE14 target price stands at Bt22, pegged to a PER of 10x (0.2SD above SPALI’s FY06-13 mean).
To post record 4Q13 net earnings
We have cut our FY13 core profit estimate by 8%, due to a 1.9% slimmer NM assumption (to 22.1%). Our residential sales expectation remains Bt12.6bn (up 12% YoY). We have trimmed our FY13 residential GM assumption from 41.6% to 41.0% and upped our SG&A expenses estimate (tied to 4Q13 transference). However, our FY14 core profit expectation stands unchanged at Bt3.8bn. Despite our model adjustments, SPALI will post a record 4Q13 core profit of Bt1.7bn, up by 4% YoY and 379% QoQ. 
Aggressive FY14 launch plan
The FY14 launch schedule totals Bt33bn (67% condo, 33% low-rise; 70% in Bangkok, 30% upcountry), up 87% YoY. That means low-rise launch value expansion from just Bt5.3bn in FY13 to Bt14bn this year (60% upcountry). SPALI plans to debut eight condos in FY14 with a combined value of Bt19bn, up 50% YoY. Note that two big condo launches were delayed from last year—Supali Monte 2 (Bt1.7bn) and Supalai Lite Ratchada Sathorn-Narathiwas (Bt2.5bn). SPALI aims for total FY14 presales growth of 18% YoY to Bt22bn. However, we conservatively assume that if the political unrest were to persist, the FY14 launch and presales targets would be downsized.
The clearest revenue visibility in the sector
SPALI’s huge Bt39bn presales backlog—Bt16bn is slated to transfer in FY14, Bt14.4bn in FY15, the rest in FY16-17)—secures 95% of our revenue forecast for FY14 and 76% of FY15 (the clearest revenue visibility of our coverage). We conservatively forecast FY14 residential revenue growth of 30% to Bt16bn (16% below SPALI’s guidance of Bt20bn). Residential GM for the year should inch up 20 bps, driven by a higher proportion of condo revenue in the sales mix (from 50% in FY13 to 60-65%; condos yield fatter GM than low-rise). SPALI will post smoother quarterly earnings in FY14 than in FY13 (1H14 profit should comprise 37% of the FY14 total; 1H13 profit comprised only 27% of the FY13 total).
Gain from sale of a rental asset in the Philippines
The firm invested in office space at The Petron Mega Plaza (Manila, the Philippines) in July 2013 (Bt770m; 8.4% yield).  Management guides that an investor wants to buy the property at a 15% premium to the price paid last year. If a deal is sealed, it would mean upside to our earnings model.