Quality Houses

Quality Houses Plc

QH shares have underperformed the SET, likely because it missed its targets for both presales and revenue. In 2015, presales grew a mere 3% YoY with revenue flat or down slightly. For 2016, the company has set a more realistic target of 10% growth for both presales and revenue, in line with our forecast. We see the stock as mispriced, trading below its investment value. BUY.

 

4Q15 preview. We estimate a strong net profit of Bt1.45bn, +114% YoY and +155% QoQ thanks to large condo transfers (mostly Q Asoke) and higher low-rise revenue in line with strong presales in 4Q15. This would bring 2015 to Bt3.2bn, in line with our forecast. It will release results on February 26.  

 

2015 operational wrap up. QH postponed nine new launches (four condos and five low-rise) thus opening only 21 projects with sales value of Bt25.8bn (+9% YoY) in 2015. This was bad news for both presales and revenue. Presales were only Bt19.9bn (77% low-rise and 23% condo), miniscule growth of 3% and 16% below its target. Revenue is expected to miss its target of Bt22.1bn by 10%, giving it little or no growth YoY. 

 

2016 outlook. The company targets 10% growth in presales and in revenue in 2016, backed by more active stock. This was Bt61.5bn as of 3Q15 and it will launch 15 projects worth Bt16-17bn this year. For low-rise projects, it will focus on mid-low TH (Gusto and Casa City brands) priced at Bt2-3mn/unit. It will boost presales and revenue from existing projects by using new models. This will cut its land acquisition budget by 25% YoY to Bt4bn – it wants to bring down its gearing ratio to 1:1 from 1.4:1 in 3Q15.

 

Mid-low TH market. According to AREA, outlook for TH priced at Bt2-3mn is good as seen in the strong demand growth of 75% YoY to 11K units in 2015. The market for this is also sizable, accounting for 11% of total demand. We expect demand for this segment to continue rising as projects are generally sited not far from Bangkok’s central business district, giving family style living at an affordable price. QH has raised its share of revenue from TH to 27% of total revenue in 3Q15 from 20% in 2014 and 15% in 2013.    

 

Our view. Our 2015 revenue forecast may end up 5% above the company’s, but 2016F is in line with company guidance and we maintain our forecasts. 

 

Maintain BUY. We continue to like QH, as it is trading cheaply at a discount to the value of its investments of Bt26.8bn – with market cap at Bt23.3bn. We maintain our mid-2016 TP of Bt3.5/share (real estate Bt2.0/share and investments Bt1.5/share). BUY.