AP (Thailand)

AP (Thailand) Plc (AP)

 

Investment thesis

AP is heading for a challenging year in FY16 (low revenue visibility), but the FY17 earnings outlook is very promising. Valuations are deeply cheap, at an FY16 PER of only 6.3x, the lowest PER of our ResDev coverage and a 17% discount to its FY06-14 mean. Thus, we maintain a TRADING BUY rating, at a YE16 target price of Bt6.9, pegged to PER of 7.5x (its FY06-14 mean). Short-term catalysts are its second quarterly best core profit in 4Q15 and a good FY15 dividend yield announcement after 4Q15 result. 

Achievable impressive FY15 presales but revenue cut

Unsurprisingly, management reaffirmed delivery of strong presales growth of 25% to a record high of Bt28.3bn in FY15 (up 37% for condos and 13% for low-rises). Launches were cut 23% to Bt29bn (60% condo, 40% low-rise), expanding 22% YoY after the delay of two sizable condos (Aspire Sathorn-Ratchapreuk with Bt2.9bn and another JV condo, Bt5.7bn). AP had revised down FY15 residential revenue target of 8% to Bt23.3bn (89% secured by end-Sep backlog). The diminishing revenue target is in line with our view that the firm will be a beneficiary of manageable growth in FY16 (our modeled revenue growth is 2% for FY15 and 6% for FY16). Despite the cut, we expect AP to post the second quarter of best transfers and core profit for 4Q15 (a jump of about 60% YoY and QoQ).   

Successful JV condo launches have yet to pay off

AP has proven impressive feedback on JV condos with Mitsubishi Estate Group at an 83% mean take-up rate for a total of six condos (launch events were in mid-2014 and will be held in mid-2015). But, JV condos will start revenue recognition in 3Q16 and onwards, in Figure 7. Thus, the equity income of the JV company will be in red ink in FY15-9M16 and turn to profit in 4Q16 when three condos are transferred. 

Rocky road in FY16 

FY16 earnings visibility is low at 14% of our residential revenue guarantee by backlogs. We modeled FY16 residential revenue of Bt24.6bn, up 6%, below AP’s target of 10%. Key revenue drivers are its low-rise business (about half of AP’s revenue), prebuilt condo Galerie rue de 39 (Bt3.2bn of value) and the relaunch of Aspire Ngam Wong Wan Bt2.6bn). Its FY16 low-rise revenue growth target is set at 10% which is possible on two years’ historical growth rate of 9% per year and a 15% larger new launch in FY16. But, key challenges are prebuilt condo feedback and finished condo sales. 

Blossom year in FY17

AP will deliver impressive earnings growth in FY17 (a 19% core profit growth in our model) boosted by the harvest from JV condos. Equity income is expected to jump from Bt110m for FY16 to Bt1bn for FY17 based on Bt8bn from five JV condos transferring (Bt3bn in FY16 and none in FY15). JV condos are modeled at a 15% of net margin, which is above AP’s mean of 11.5%. Its profitability ratio will fatten strongly in FY17.