Residential Property

Residential Property  

 

In 4Q15, aggregate profit of the seven largest developers grew little YoY but strongly QoQ, making it the best quarter of the year, backed by higher revenue and better margins. The government’s incentive program also gave a boost via smoothing transfers. In 2015, core profit inched up just 3% YoY, far less than the revenue growth of 11% because of price (and thus margin) cuts in order to speed up sales. This year looks better: we expect presales growth of 19% with core profit growth of 12%. LH is still our top pick for its growth outlook for 2016-2017. 

 

4Q15: best of the year. The combined net profit of the seven leading property developers (AP, LH, LPN, PS, QH, SIRI, and SPALI) rose just 11% YoY, but jumped 47% QoQ to Bt11bn in 4Q15, accounting for 35% of full 2015. This represented the return of transfers after government incentives came into play plus more housing completions. 

 

Best on higher revenue and better margins. Revenue rose 25% QoQ to Bt57.8bn upon the completion of more condo and low-rise projects. Leading the list were QH (+82%), LH (+55%), PS (+53%) and SPALI (+38%). Gross margin improved to 33.7% in 4Q15 from 32.6% in 3Q15 as price cutting was less prevalent and there was a lower portion of low-margin projects . Net profit margin surged 310bps to 18.5% as a result of economies of scale and property tax savings. 

 

LH winner, LPN loser. Only LH beat us and consensus forecast and led the sector with a net profit growth of 129% QoQ. Behind this was a leap of almost three-fold in condo revenue QoQ. LPN did poorly with a plunge of 72% QoQ as fewer condos were completed in the period. 

 

Core profit almost flat in 2015. Overall 2015 profit grew a mere 3% YoY to Bt30bn. This can be blamed largely on price cutting to move slow-moving stock – which pulled gross margin down by 240bps, overwhelming the revenue growth of 11% YoY. Also, property tax savings was very small, applied only to transfers in November-December.   

 

Shrinking backlog. Aggregate backlog continued to fall, coming down 21% YoY and 11% QoQ to Bt135bn (84% condos and 16% low-rise) as of end-4Q15, blamed on lower condo presales than transfers. This will secure 39% of our 2016 forecast. LPN, SPALI and SIRI have higher revenue backlog of 67%, 63% and 48% respectively. The deposit/backlog ratio was stable at 8.5% as of December.  

 

2016 outlook. Based on developers’ business plans, aggregate presales will grow 19% YoY to Bt215bn (54% low-rise and 46% condo) in 2016, driven by 30% growth for condos and 11% for low-rise. Backing this is a rise of 23% in new launches to Bt229bn (52% low-rise and 48% condo), versus a drop of 9% last year, largely driven by a 50% jump in condo launches, which will secure revenue in 2018 and on. SIRI is most optimistic, targeting presales growth of 47% and SPALI most conservative at 6%. Excluding extraordinary items, we estimate core profit growth of 12% to Bt33bn this year.   

 

Top pick: LH. We like LH, as its earnings are turning the corner to a growth cycle in 2016-2017 with good core profit growth of 18% in 2016 and 23% in 2017. With record 

 

backlog of Bt20.4bn, LH’s earnings visibility is improving and forecast risk is reduced.