Supalai

Supalai Plc (SPALI)

In line with our model

SPALI reported a record core profit of Bt1.76bn for 4Q13, up by 9% YoY and 401% QoQ. The result was in line with our estimate and the consensus. The firm announced a final DPS of Bt0.40 for 2H13, implying a 2.3% simple yield (XD on March 7; payment on May 6).  
Results highlights
The impressive earnings were driven by all-time high residential revenue of Bt6.7bn, up by 20% YoY and 257% QoQ. Three sizable condos started transferring during the quarter—City Resort Ratchada-Huaykwang, Park Ratchapruek-Petchakasem and Premier Ratchathewi. The Condo proportion of the revenue mix rose from 46% in 3Q13 to 67% in 4Q13. Housing GM increased from 40.1% in 3Q13 to 41.2%, due to the changed composition of the sales mix (SPALI’s condo GM is fatter than its low-rise GM). The SG&A/sales ratio declined by 0.9% YoY and 8.4% QoQ to 8.3% in 4Q13, due to top-line expansion. Net gearing fell from 0.7x at end-Sept to 0.5x at YE13.
Outlook
SPALI’s profit will rise YoY in 1Q14, we believe. Residential sales are expected to jump 20% YoY to Bt2.4bn on the transference of remaining units at Premier Ratchathewi (Bt1.8bn in presales are slated to transfer in 1Q14). GM should fatten YoY on a greater proportion of condo sales in the revenue mix—we forecast that the proportion will rise from 31% in 1Q13 to 50% in 1Q14. Profit for the quarter will definitely decline QoQ from the high base set by record 4Q13 top-lines and bottom-lines.
What’s changed? 
We see scope for upside to our FY14 earnings forecast of 10-15%, should revenue exceed our model and/or SG&A expenses be lower than we currently assume. SPALI’s presales backlog at YE13 (Bt39bn) secures 95% of our FY14 top-line projection and 76% of FY15. Note that our residential revenue forecast is 16% below management’s target of Bt20bn (the street number is Bt18bn). We also assume that the SG&A expenses/ sales ratio will remain at 12% for FY14; the firm guides for only 10%.
Recommendation
We prefer SPALI for its FY14 earnings growth leadership of our ResDev coverage and its de-leveraging trend (its net gearing ratio is expected to be 0.4-0.5x at YE14). Our model points to 31% profit growth for the firm this year against a mean of only 8% for our coverage. SPALI also has the clearest revenue visibility of the stocks we cover. It currently trades at a low PER of 7.9x for FY14 (our coverage mean is 8.4x). We believe a re-rating is in order. In the meantime, SPALI will post the best YoY bottom-line growth of our ResDev coverage. Our YE14 target price is Bt22, pegged to target PER of 10x (about 1x above the firm’s FY06-13 mean). BUY!