Quality Houses

Quality Houses Plc (QH)

May presales up strongly MoM to Bt1.7bn, up 70% MoM, off condo presales of
Bt600mn (from Bt150mn) thanks to presales of The Trust Condo Amata Nakorn. Lowrise
presales were Bt1.1bn, 29% growth from April’s correction due to long national
holidays. This brings presales to Bt6.8bn for 5M14 or 32% of its full year target. We look
for sequential presales growth QoQ for this year.
Coup neutral to property sales. We maintain our view that low-rise presales will
grow 5-10%, but condo presales will drop substantially. We expect 2H14 sales to
improve HoH. In the near term, clients could delay deed transfers in June, waiting for a
property stimulus program. For the longer term, this will have no impact. Low-rise
presales for the first week after the coup (May 24-30) slowed to Bt100mn from the
weekly average of Bt330mn in the first three weeks of May, but we believe it is too
early to assume a trend. The company said some TH presales will not be included in
presales numbers until clients are pre-approved for their mortgage, generally within a
few weeks.
New launches maintained. QH confirms that it will launch 26 projects with sales
value of Bt22.8bn this year. In April-May, it held soft launches of two condos – Casa
Condo at CMU in Chiang Mai and Q Seaside Hua Hin, with take-up rate of 10% and 30%
respectively. Pre-bookings of Q Seaside Hua Hin are not included in presales yet, as QH
will officially list them as booked only after it receives its EIA permit. QH has put off the
opening of Bt483mn QH Condo Phaholyothin Chiang Rai, waiting for better sentiment,
though the project is not in the earthquake area. If, in the worst case, the project is
postponed or canceled, we expect it would not hinder QH from achieving its presales
target.
Look for sequential revenue growth QoQ in 2014. We expect improvement QoQ in
2Q14, backed by transfers of Casa Condo Ratchada-Ratchapruk, for which there is
Bt1.5bn backlog awaiting recognition from 2Q14. Gross margin for this project is a high
37%, continuing the trend for a wider gross margin. Note that its real estate gross
margin was 31.8% in 1Q14. It will release results by mid-August. Sequential growth of
revenue recognition is expected in 3Q14 and 4Q14 as The Trust Condo Hua Hin (Bt654
backlog) and Q. House Sukhumvit 79 (Bt1.8bn backlog) will be completed in 3Q14 and
4Q14 respectively. This is a change from our previous view that 3Q14 would be peak.
Reiterate BUY with TP of Bt5. QH is cheap in our view. With huge hidden value of
investments, at last close it was trading at 4.3x and 0.7x adjusted 2014 PER and PBV
(deducting investment value from share price) respectively. Growing presales and
revenue QoQ in 2Q14 coupled with the plan to sell LHBANK shares could be near term
catalysts. We remain BUYers.