Quality Houses

Quality Houses Plc (QH) 

 

3Q15 net profit was Bt570mn (EPS Bt0.05), -47% YoY and -15% QoQ, as expected and we thus trim 2015-2017 forecasts. 9M15 net profit is Bt1.8bn, -33% YoY, and 55% of our revised forecast, but we expect a strong 4Q15. The cut in earnings gives a new mid-2016 TP of Bt3.5/share. We see the stock as cheap, with total investment value of Bt28.7bn, well above its current market cap of Bt25.7bn. BUY. 

Real estate revenue was Bt4.0bn (85% low-rise and 15% condo), -35% YoY and -5% QoQ on fewer transfers for both condo and low-rise, as buyers put transfers off in anticipation of government incentives. 

Condo income came from The Trust Condo Amata Nakorn, The Trust Condo South Pattaya, and Casa Condo @ CMU 

Gross margin slid 10bps due to product mix (low-rise 30% and condo 31.8%). Condo gross margin sank 130bps YoY but came up 70bps QoQ while low-rise gross margin narrowed by 110bps YoY and 20bps QoQ. 

Equity income was Bt299mn, +12% YoY but flat QoQ (HMPRO Bt160mn, LHBANK Bt94mn, QHPF Bt34mn, and QHHR Bt11mn 

2015 wrap up and 2016 outlook. QH cut new launches by nine projects (four condos and five low-rise) worth Bt7.4bn, its presales target by 18% to Bt20bn, a rise of only 4% YoY, and revenue by 10% to Bt20bn, flat growth YoY. It targets 10% growth for presales and revenue in 2016. 

Trimming forecast. We trim our forecast by 8% to Bt3.3bn for 2015, 11% to Bt3.6bn for 2016 and 10% to Bt3.9bn for 2017, cutting both revenue and gross margin. We still, however, expect a record revenue of Bt7bn in 4Q15, +47% YoY and +74% QoQ. Current backlog already secures 77% of our 4Q15 forecast.   

Maintain BUY. We lower PBV valuation to 1.00x from 1.25x and raise investment discount to 25% from 10%, giving a mid-2016 TP of Bt3.5/share (real estate Bt2.0/share and investments Bt1.5/share). The stock is cheap trading at market cap of Bt25.7bn, below its investment value of Bt28.7bn. We maintain BUY.