AP (Thailand)

AP (Thailand) Plc (AP) 

 

Below all estimates

AP posted a 4Q15 core profit of Bt676m, up 11% YoY and 9% QoQ. The result was 27% below our estimates and an 11% disappointment to the consensus forecast due to lower-than-expected residential revenue and slimmer-than-expected GM. FY15 core profit was Bt2.5bn, down 5% YoY. AP announced a DPS of Bt0.30 for FY15 operations (in line with BLS and the street number), a 5.3% yield, XD on 9 May and payment on 26 May. 

Results highlights 

Profit growth for the 4Q15 YoY was due to lower SG&A/sales ratio (plunge from 20.8% in 4Q14 to 17.5% in 4Q15), outweighing a residential sales contraction (down 3% YoY to Bt5.8bn) and slimmer residential GM (dipped from 34.2% in 4Q14 to 32.1% in 4Q15). On a QoQ basis, earnings growth came from 8% residential sales growth. Residential comprised of 69% low rises and 31% condos). Low-rise revenue hit a quarterly record at Bt4bn (up 8% YoY and 32% QoQ), but condo revenue dropped 22% YoY and 23% QoQ to Bt1.8bn by the slow transfer of Rhythm Sathorn. Residential GM were weak at 32.1% in 4Q15 (lowest since 2007) by product mix—a lower condo revenue proportion (38% GM for condos and 29% for low rises). Equity losses (of JV condos) arose from loss of Bt21m in 4Q14 to Bt65m in 4Q15. Net gearing dipped from 0.9x at end-Sep to 0.8x at YE15.

Outlook 

We anticipate YoY growth but a QoQ contraction in 1Q16 profit. Residential sales are forecast to rise YoY but drop QoQ—no new condos are to start transferring in 1Q16. GM should improve QoQ. SG&A/sales ratio is expected to improve YoY and sustain QoQ due to its efficiency policies. What’s changed?  

We have cut core profit forecast by 7% for FY16 to Bt2.7bn FY16 to incorporate it with disappointing 4Q15 results. Modeled residential sales are cut 8% to Bt22.5bn, 5% more conservative than the management’s target of Bt23.7bn. FY16 is a challenging year for AP because of its low revenue visibility—presales backlog will secure only 39% of our residential revenue forecast. Earnings growth in FY16 will be driven by an equity income U-turn from losses of Bt207m in FY15 to profit of Bt110m in FY16.  

Recommendation 

Our TRADING BUY rating stands at a new YE16 target price of Bt6.4 (cut from Bt6.9) to reflect earnings downgrades, pegged to PER of 7.4x (its FY06-15 mean). Despite missing earnings, good DPS will support share price in the short term. Besides that, its valuations have almost totally priced in a difficult year in FY16, as the share price trades at 8% below its full-year BV. The business plan this year looks moderate on a 15% launch expansion to Bt33bn and a 10-12% growth in presales to Bt31bn. But, the following year’s earnings outlook is very promising (25% core profit growth in our model) boosted by the harvest from JV condos (equity income will jump to Bt1bn for FY17, based on Bt8bn from five JV condos to transfer).