Supalai

Investment thesis

Our rating for SPALI is BUY, premised on strong presales (up YoY and QoQ) and earnings growth in 2H14 (presales fully secure our 2H14 residential revenue forecast). The stock trades at a cheap FY15 PER of 9.4x (the second-lowest PER of our coverage). Also, our YE15 target price rises from Bt30 to Bt32 (still pegged to a PER of 12x) to factor in an earnings forecast increase.  

Earnings forecast upgrade

We have revised up our core profit forecasts by 12% for FY14 and by 10% for FY15, due to higher residential revenue assumptions—up by 15% for FY14 to Bt19bn and 13% for FY15 to Bt21bn. SPALI’s huge Bt40bn presales backlog at-end June fully secures our FY14 residential sales forecast and 72% of FY15. Its top-line visibility is the clearest of our coverage for FY14 and third for FY15 (after LPN and SIRI). Our residential sales forecasts are 6% below the firm’s guidance for FY14 and 7% below for FY15. Two condo launches in August (Supalai City Resort@Baring Station and Supalai Vista@Pakkred Intersection) pushed up the presales-secured proportion of our FY16 revenue forecast from 31% to 38%.  

Scope for earnings upside from lower S&GA expenses

SPALI targets cutting its FY14 SG&A/sales ratio at least by 1% YoY to 10.7%. But we currently assume an FY14 SG&A/sales ratio of 12.2% (up 0.5% YoY), due to the firm’s aggressive launch plan (up 70% to a record Bt30bn). If SPALI were to achieve its FY14 SG&A/sales ratio target of 10.7%, we estimate that there would be 5.5% upside to our earnings projection (note that its 1H14 SG&A/sales ratio was 12.4%).

Impressive profit outlook for 2H14

We forecast strong 2H14 profit growth of 131% YoY and 39% HoH to Bt2.9bn (70% of our FY14 projection). Our 3Q14 number is Bt1.2bn (up by 255% YoY and 155% QoQ) and our 4Q14 model is Bt1.7bn (down 4% YoY; a record was posted for 4Q13). Note that six condos are slated to transfer in 2H14 (Figure 8)—high quality presales with 18-20% down-payments (the highest of our coverage).

New launches will drive strong 3Q-4Q14 pre-sales growth

2H14 project starts will expand by 63% YoY and 125% HoH to Bt20.8bn—Bt9.6bn in 3Q14 (up by 66% YoY and 64% QoQ) and Bt11.3bn in 4Q14 (up by 61% YoY and 20% QoQ; three low-rise starts worth Bt1.5bn and four condos worth Bt9.8bn). We estimate strong presales of Bt6.3bn in 3Q14, up by 58% YoY and 50% QoQ, led by the successful launches of three condos (Supalai City Resort@Baring Station was fully booked, Supalai Vista@Pakkred Intersection was 75% booked and Supalai Elite@Phaya Thai was 98% booked). In 4Q14, SPALI is expected to post presales of Bt8.1bn, up by 20% YoY and 28% QoQ.