Supalai

Supalai Plc (SPALI) 

We still like SPALI in view of its good 2015 earnings growth outlook of 18%, though this is a sharp fall from last year’s 54%. We see limited downside risk with current backlog securing a high 78% of our forecast. Also, we see good 19% presales growth achievable off a low base and a jump in inventory of low-rise products. With solid ROE of 28%, the stock’s TTR is attractive R 29%. We reiterate BUY. 

 

2014 presales and revenue miss all expectations. SPALI’s presales were Bt19.4bn, +4% YoY, versus the Bt22bn estimate. Behind the miss is the postponement of the Bt2.5bn Supalai Lite Ratchada-Sathorn-Narathiwas and slower than expected take-up rate for Supalai Wellington 2 and Supalai Monte 2 (Chiangmai). This pulled condo presales 20% below its target to Bt11.1bn, though low-rise presales were 4% above target at Bt8.3bn. Revenue was a record high Bt18.6bn, impressive growth of 50% YoY, though this fell short of both its and the market’s projections due to a delay in transferring Supalai Wellington 1. This was caused by the application to the Land Department for a reduction in the appraised value of the condo, which would give over Bt10mn in savings on special business tax.   

 

2015: presales upbeat, but revenue growth slow. SPALI expects presales to grow 19% to Bt23bn, slightly below our forecast, driven by both low-rise (+20%) and condo (+18%). Behind this is the low-base and a 44% jump in low-rise inventory (active stock plus new launches) to Bt42.4bn. The company is conservative with regards to low-rise and expects a take-up rate of 24% versus 28-44% over 2010-2014. It expects to launch nine condos worth Bt15bn with at least two projects in good locations – Sathorn-Narathiwas and on the riverside off Rama 3. It expects 24% revenue growth to Bt23bn, in line with our forecast, with condo rising 25% and low-rise 18%. Current backlog of Bt38.8bn secures 78% of our 2015 forecast and 45% of 2016. 

 

Australia investment. SPALI will inject Bt280mn to take 25% in a private equity fund, that will operate a property development in Australia. The project value is Bt9bn and will last for more than 10 years. The company hopes to gain some knowledge from this company. It believes risk is low as the permit is granted and it will only develop the infrastructure (utilities, roads, etc.) and nothing else.  

 

Earnings revision. We cut our 2014 forecast by 8% to Bt4.4bn (EPS Bt2.58) to incorporate the lower-than-expected deed transfers, and then adjust 2015 and 2016. We factor in a Bt10mn loss from the Australian investment in 2015 but a profit of Bt10mn in 2016. We now estimate 54% earnings growth in 2014 and 18% in 2015. Our price target is unchanged at Bt30.5/share on 3.0x PBV.  

 

Maintain BUY. At last close, SPALI is trading at 9.5x PER and 2.5x PBV, which drops to 8.0x and 2.1x respectively on favorable earnings growth of 18% this year. The stock provides a good TTR of Bt29%. We maintain BUY.