Quality Houses
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Quality Houses Plc (QH)
This is a good time to buy QH, whose share price has fallen 16% from its peak in September, underperforming both the SET and peers. We like QH for its good growth outlook of 20% next year plus upside from wider gross margin and gain from sale of HMPRO’s assets to a REIT. At last close, it is trading at an undemanding adjusted PER of 4.7x and PBV of 0.7x of 2015. TTR is good at 51%.
Revenue to beat all expectations. We raise 2014F 2% to Bt3.4bn (EPS Bt0.37) after factoring in more condo transfers than expected and lifting equity income by 7% after the earnings upgrade for LHBANK. We leave our 2015 and 2016 forecasts unchanged at Bt4.1bn (EPS Bt0.45) and Bt4.9bn (EPS Bt0.54) respectively. This implies a growth of 3% YoY in 2014, and 20% in each of 2015 and 2016.
Pre-sales to miss. Presales were Bt17.5bn in 11M14 and we estimate it will add another ~Bt2.5bn in December on 11 project launches (eight low-rise and three condos). The condos are the Bt3.2bn The Trust Condo Samutprakarn 1 (15% sold), the Bt1.2bn The Trust Condo North Pattaya and the Bt635mn The Point Condo Laem Chabang 1, QH’s first low-end condo priced at
Growth of 20% in 2015. QH plans to increase new launches YoY to provide 20% presales growth in 2015. It already has 24-25 land plots out of the 29 needed, including the land for the Bt9bn Q Sukhumvit, a high-end condo on Sukhumvit 6 being launched in 1Q15. The completion of five condos (The Trust Condo South Pattaya, The Trust Condo Nakorn Prathom, The Trust Condo Ngamwongwan, The Trust Condo Amata Nakorn and Q. Condo Asoke) will underwrite revenue growth of 20% next year.
Upside/catalysts. 1) QH expects to expand its gross margin by 100bps to 34% in 2015, above our forecast of 32.8%, implying 5% upside to 2015 forecast. 2) Possible higher profit from HMPRO, in which it holds 19.8%, if it successfully sells assets to HMPRO REIT. 3) Positive sentiment on possible partner for LHBANK, in which it holds 21.4%.
Provincial presales and revenue at 15-20% of total. QH focuses on Chonburi, and Rayong, where demand is plentiful from both locals and those working there, drawn by the large industrial and tourism demand. Chonburi and Rayong were in the top ten with the highest per capita income growth over 2003-2010 at 8.2% and 9.2%, with a 2% annual growth in population for the past ten years, well above the average of 0.3%. As a high-profile developer competing largely with local developers, QH’s products do well. A site visit showed strong demand in Chonburi, with good response to new launches: Casa Regent Ban Bueng (12/87 units sold) and Casa Grand Sriracha (50/196 units sold). Revenue contribution from Chonburi will jump by 50% to Bt3.0bn in 2015.
Adjust TP, valuation undemanding. QH is trading at a low PER of 4.7x and PBV of 0.7x of 2015 based on adjusted share price (excluding Bt2.2/sh investment value at last close). Though, we lower QH’s price target slightly to Bt5.5/sh (Bt3.3/sh for residential business and Bt2.2/sh for investment value) from Bt5.8/share following HMPRO’s price target cut by 10% to Bt10.0/sh, TTR is still attractive at 51%.
