Quality Houses

Quality Houses Plc  

 

In our view, the 15% YTD fall in QH’s share price is overdone, even if we factor in the recent 8% cut in 2015 revenue and the 14% YTD fall in HMPRO share price. At last close, QH’s market cap is close to the market value of its investments (HMPRO, LHBANK, QHPF, QHHR and offices & hotels), implying the market is not assigning value to QH’s real estate business, which is still performing. In the near term, we expect the better 2Q15 presales and profit to act as positive catalysts. We BUY. 

 

Good April-May presales. Presales in April-May totaled Bt3.6bn (predominately low-rise at 53% with condo at 47%), good growth of 33% YoY versus only 11% growth in 1Q15. Most of the presales came from the condos Q Sukhumvit (15% sold) and Casa Condo @MRT Samyak Bangyai (50% sold). Presales in the 5M15 total Bt8.4bn, growth of 23% YoY, accounting for 38% of its full year target. We expect presales to grow even more in 3Q15-4Q15 when QH launches more low-rise projects and reopens Q Sukhumvit. Sales of this condo have been put on hold as it adjusts the room plan and considers connecting the condo and the BTS station. Sequential revenue growth QoQ to peak in 3Q15. Backed by the completion and transfer of two new condos in 2Q15 – the Bt1.2bn 

 

The Trust Condo South Pattaya and the Bt611mn The Trust Condo Nakornpathom, revenue will grow QoQ. The launch of some low-rise estates (10 estates worth Bt7.1bn) and transfers of The Trust Condo Ngamwongwan condo will support revenue growth in 3Q15. For 4Q15, Q Asoke

 

 will provide the majority of condo revenue.  Gross margin was low at just 32% in 1Q15 due to price promotion to move the remaining units of Q12. We expect gross margin to improve in 2H15 as new projects will provide a higher gross margin of 33-36%.  

Recent guidance cut. The slower demand in 1Q15 plus the postponement of the launch of four condos worth Bt4.5bn (Casa Seaside Condo Rayong, Casa Condo @MRT Klong Bang Pai 

 

The Trust Condo Rattanthibet and Q House Condo Klangwieng Chiang Mai ), led QH to lower its target by 3% to Bt23.6bn (+23% YoY) for presales, by 8% to Bt22.1bn (+10% YoY) for revenue, and by 100bps to 33% for gross margin.   

 

Earnings and PT trimmed. In line with guidance, we lower our revenue forecast by 6% to Bt22bn for 2015 and 7% to Bt26bn for 2016. However, we prefer our conservative gross margin forecasts at 32.7% for 2015 and 32.8% for 2016. We thus cut our forecast by 8% each year to Bt3.8bn (EPS Bt0.35) in 2015 and Bt4.5bn (EPS Bt0.42) in 2016. Our 2015 forecast is now in line with consensus, but 5% above for 2016. Following the earnings cut, we lower PBV valuation to 1.5x from 1.75x and this gives a new price target of Bt4.8/share (Bt1.9/share for investments and Bt2.9/share for real estate).