Sansiri

Sansiri Plc (SIRI) 

Investment thesis

We accompanied Mr Wanchak Buranasiri, CFO, and Ms Varangkana Artkarasatapon, chief of IR, to a meeting with non-institutional investors.  The executives guided for a recovery in FY15 (a YoY doubling of launch value to drive presales). Execution risk is easing, as SIRI proved huge transference in 4Q14 and de-leveraged at YE14. Its FY14 dividend yield of 6.6% (the highest of our ResDev coverage) should boost the stock price. SIRI trades at a 5% discount to its YE14 BV of Bt1.8/share and its FY15 PER is 8.0x (the second-lowest of our coverage). Our rating is BUY.   

Proven huge transference of Bt10bn in 4Q14

Management guided for residential revenue of Bt27bn in FY14, implying huge transference of Bt10bn in 4Q14 (the best quarter of the year), up by 17% YoY and 44% QoQ (in contrast, our ResDev coverage will post slight YoY slippage and ~10% QoQ growth for 4Q14). Top-line expansion will have made for core profit growth of 35% QoQ to Bt1.07bn (versus a flattish expectation for our coverage as a whole). Looking ahead to 1Q15, SIRI will report a core profit against a core loss of Bt42m for 1Q14.

Improving efficiency and de-leveraging

In FY14, the first priority was to fatten margins through efficiency improvements. Residential GM was 33-34% (33% in our model). The SG&A/revenue ratio was cut. We expect SIRI to post an SG&A/sales ratio of 21.7% for FY14, down from 23.8% for FY13. Core margin is modeled to rise from 6.7% in FY13 to 8.4% in FY14 and 9.0% in FY15. Besides, the balance sheet is strengthening. The net gearing ratio will post a drop from 2.1x at end-Sept 2014 to 1.6x at YE14.

Presales backlog clearance in FY14

SIRI will fail to deliver its presales target for FY14, due to high cancellations among speculators that reserved SIRI condos in 2012-13 (aggressive promotions at launch). FY14 presales are guided to have plunged 79% YoY to Bt8.8bn (SIRI’s FY14 target was Bt12bn). The firm will recognize Bt2bn in net cancellations of condo bookings in FY14, chiefly from low-end condos in Chaingmai, Phuket and Udonthani. Also, the proportion of ex-Bangkok launches dived from a peak of 43% in FY13 to only 5% in FY14. Despite that, the YE14 presales backlog remained big at Bt36bn (Bt20bn to transfer in FY15, Bt13bn in FY16 and Bt2bn in FY17). 

Strong growth outlook for FY15

Management guides that launch value will double YoY to Bt35bn in FY15 (17 projects in total), 63% condo and 37% low-rise; 90% in Bangkok and 10% upcountry. The quarterly launch schedule is Bt7bn in 1Q15, Bt9bn in 2Q15 Bt9bn in 3Q15 and Bt17bn in 4Q15. SIRI plans to launch two sizable condos with a total value of Bt6.5bn in 2Q15, one condo (Bt2.8bn) in 3Q15 and seven condos (Bt13bn) in 4Q15. The FY15 presales target is Bt30bn, up 239%. SIRI targets FY15 residential revenue of Bt34bn, up 25% (we forecast Bt33bn, of which 66% is secured by presales).