Residential Property

Residential Property 

 

Fourth quarter will be this year’s best, supported by the government stimulus package, which helped smooth transfers, as well as condo completions and solid low-rise presales. QH and PS will report a new high for profit, while LH’s profit will double QoQ. Only LPN will post weaker results QoQ and YoY. Meeting our preview suggests upside risk to our full year forecast for PS (+15%), SIRI (+5%), LPN (+3%) and downside risk for AP (-7%) and QH (-5%). LH is still our only top pick, based on its good growth outlook for 2016-2017. 

 

4Q15F best of the year. The seven developers in our coverage are expected to report growth of 47% QoQ and 10% YoY in aggregate net profit to Bt11bn in 4Q15, making it the year’s best, with growth of 2% YoY. This good result is due to the combination of government stimulus, more condo completions in the period and solid low-rise presales. The October 29 start of the government stimulus package (transfer fee cut from 2% to 0.01% and special business tax cut from 3.3% to 0.01%) raised affordability and smoothed transfers. The cuts have limited impact on wider operating profit as the sector still needs some more promotions to attract buyers into making immediate transfers.  

 

Best/worst performers. Thanks to more condo transfers than expected, revenue and profit for both QH and PS were new high. We estimate profit of Bt1.3bn (+126% QoQ and +98% YoY), 20% higher than consensus, for QH, and Bt3.0bn (+83% QoQ and +59% YoY), 13% higher than consensus, for PS. LH had strong prebuilt sales in October-November and this means immediate revenue recognition, which pulled up revenue and core profit growth by 50% and 43% QoQ respectively. Including Bt960mn gain from carving off Grand Centre Point Sukhumvit hotel, its bottom line doubled QoQ. LPN is at the bottom of the list for performance (-52% QoQ and -35% YoY) as it completed only a few condos in the period and transfers at Lumpini CondoTown Rangsit Klong 1 missed its goal.   

 

Upside/downside risk to 2015F. Adding 4Q15F to 9M15, we see 15% upside risk for PS, 5% for SIRI and 3% for LPN. There is 7% downside risk for AP and 5% for QH. 

 

2016 outlook. We look for 8% net profit growth and 14% core profit growth in 2016. Key drivers are higher revenue recognition, improved gross margin, sustainable SG&A expense/revenue and higher profit contribution from JV projects. Developers will focus on low-rise presales and transfers in the first four months of 2016 in order to benefit from the property tax cut. Revenue recognition will be spread equally between 1H16 and 2H16, little changed from 45:55 in 2015. 

 

Sector picks - LH: We like LH for its turnaround story in 4Q15 and its growth outlook for 2016 and 2017. Adding to its attraction is the one-time gain of ~Bt960mn from an asset spin-off in 4Q15.