Quality Houses

Raise forecast, TP on better presales, gross margin

Quality Houses Plc (QH)

- Presales forecast raised on stronger low-rise presales than expected and additional condo launch

- Higher presales and gross margin assumptions raise earnings 7% for 2014, 15% for 2015 and 22% for 2016

- PT raised to Bt5.8/sh; maintain BUY

New launches upped. The strong demand has led QH to raise its planned new

launches by 10% to 27 projects/Bt24.5bn (from 25 projects/Bt22.3bn), representing

growth of 23% YoY. It raised TH by 20% to Bt8.3bn and condo by 39% to Bt9.9bn, but cut

SDH by 33% to Bt4.6bn. It shifted the Bt378mn Casa Seaside Condo Rayong to 2015 and

replaced it with the Bt3.1bn The Trust Condo Samut Prakarn.

Presales raised. We raise our presales forecast by 22% to Bt22bn for 2014F after

incorporating more new launches plus stronger than expected low-rise presales. We

increase 2014 low-rise presales by 13% to Bt15.3bn, representing 25% growth YoY,

backed by the strong TH presales (+34% YoY in 1H14). Adding in another project raises

our condo presales forecast by 45% to Bt6.8bn. In sum, we look for sequential presales

growth this year with a jump QoQ in 4Q14 upon the launch of three condos. QH

recorded Bt10.5bn presales in 7M14 or 47% of our forecast and 49% of its target.

Earnings upgraded. We raise forecast by 7% to Bt3.3bn for 2014, 15% to Bt4.1bn for

2015 and 22% to Bt4.9bn for 2016. Changes include: 1) higher low-rise revenue in line

with the raise in presales; 2) a 100 bps widening in 2014 gross margin to 32.5% to

factor in the better gross margin than anticipated in 2Q14, and expectation of a

continuation of this trend through next year from the greater proportion of highmargin

new projects; and 3) cut equity income by 10% in 2014 and 7% in 2015 in line

with SCBS forecasts. Current backlog is Bt10bn, securing 71% of 2014F. Our forecast is

8% above consensus for 2014 and 17% for 2015; we expect the market to line up soon.

Going east. QH’s presales/revenue from the east of Thailand is rising as it has largest

number of housing projects there compared to listed peers. By 2014, QH will have nine

projects worth ~Bt7bn and seven more (land acquired) in Chonburi and Rayong, two

provinces growing most rapidly in terms of population and per capita income. It is

targeting local residents working in industry and/or services in the premium market. It

recently launched The Trust Town Bowin, its first provincial TH, and 42% sold within

two months. It has not yet put this into presales as it is conservative and will book only

when mortgage pre-approval is granted. This ensures its backlog quality.

Reiterate BUY. QH has a good growth outlook and we see its valuation as cheap. At

last close, it is trading at an undemanding adjusted PER of 5.6x and PBV of 1.0x of

2014F and these will drop substantially to 4.6x and 0.9x respectively. In the near term,

earnings and presales upgrades will be catalysts. We remain BUYers with TP raised to

Bt5.8/share (Bt3.4/sh for real estate and Bt2.4/sh for investment) from Bt5/share in

line with our earnings upgrade and raise in valuation to 1.75x PBV from 1.50x on

improved RoE.