Supalai

Above our estimate

SPALI reported a core profit of Bt1.6bn for 3Q14, up by 351% YoY and 198% QoQ. The result was 16% above our estimate and 15% ahead of the street, due to better GM than expected of 44.3% (we had expected 41.0%).    

Results highlights 

The hefty YoY earnings growth was driven by 212% residential revenue expansion to Bt5.8bn (a low base was set of Bt1.9bn in 3Q13—the second lowest number of FY13), 4.3% fatter residential GM to 44.3% and a lower SG&A/sales ratio of only 9.5% (16.7% in 3Q13). Residential revenue was 70% condo and 30% low-rise. The remaining units of The River Resort transferred and two new condos, Park Kaerai-Ngamwongwan and Park Phuket started transferring. Residential GM was the fattest since 1Q10, boosted by GM of about 45% for condos (driven by The River Resort and Park Kaerai-Ngamwongwan). Low-rise GM was 39%. 

The QoQ earnings growth was due to 127% residential revenue expansion, a 3.6% fatter GM and a 4.1% lower SG&A/sales ratio. Net gearing dipped from 0.9x at end-June to 0.8x at end-Sept.   

Outlook 

SPALI’s earnings will rise QoQ in 4Q14, we anticipate, led by the top-line. Three condos will start transferring—Supalai Premier at Asoke (Bt2.8bn; fully booked), Supali Wellington (Bt4.8bn; 77% booked) and Asean City Resort Songkhla (Bt1.2bn; 99% booked). Residential GM is unlikely to be as fat as it was in 3Q14. Note that we expect YoY profit slippage from the record posted for 4Q13 of Bt1.8bn. 

What’s changed?  

9M14 core profit comprises 67% of our full-year forecast (66% of the consensus), which stands unchanged. SPALI’s presales backlog fully secures our FY14 residential income assumption and 76% of FY15. Note that our FY14 residential revenue forecast is 6% below management guidance of Bt20bn. The SG&A/sales ratio may be lower than our estimate. 

Recommendation 

Our BUY rating stands. SPALI trades at an FY15 PER of only 9.3x against an 11.0x coverage mean. Top-line visibility is clear. We maintain a YE15 target price of Bt32, pegged to a PER of 12x (2SDs above its FY06-13 mean). In 4Q14, the firm will launch three condos—Supalai Welliton II (Bt3.2bn), Supalai Veranda Rattanathibeth (Bt2.4bn) and Supalai Monte II (Bt1.7bn). However, SPALI may postpone Supalai Lite Ratchada-Sathorn-Narathiwas (Bt2.5bn) from 4Q14 to 1Q15. Project launches are expected to drive QoQ presales growth of 10-15% for 4Q14.