Sansiri

Sansiri Plc (SIRI) 

 

SIRI is one of Thailand’s best known and strongest brands, but at last close, is trading at a discount to book value, which we feel is not justified: book value is growing and dividend yield a steady and high 6.7%. We value it at 1.0x PBV, which gives a new TP of Bt2.0/share, a TTR of 38%. We see risk/reward as attractive and maintain BUY.   

 

Growing presales. We estimate 20% YoY growth in presales to Bt34bn this year from last year’s Bt23.2bn (including 100% of JV sales). We are more conservative than the company, which targets Bt42bn (100% of JV sales), +47% YoY, of which two-thirds is condo (+60% YoY) and the rest low-rise (+27% YoY).   

 

New launches doubled to support presales growth. SIRI is planning to push new launches up 127% YoY to Bt50.4bn this year, 70% condo and 30% low-rise. It will launch three prebuilt condos worth Bt4.0bn for its own brands (dcondo Rama IX, dcondo Campus Rangsit and dcondo Chiangmai), booking revenue immediately upon sale, and 5-6 projects worth Bt23.1bn for JVs (on Rama IX, Sukhumvit 38 and Sukhumvit 55).   

Profit from JV not until 2018. It’s JVs had losses of Bt234mn in 2015 and we expect a continued loss in 2016 of Bt150mn. This is better than our earlier estimated net loss of Bt189mn since transfers for 

THE LINE Sukhumvit 71 were quicker than anticipated. We expect losses to continue into 2017 at Bt250mn rather than the earlier net profit of Bt229mn after delays in the launch and transfer of THE LINE Wongsawang and THE LINE Paholyotin.

 

There were also more new launches which bring an accounting mismatch of expenses and revenue, since expenses are booked as they occur and revenue when deeds are transferred. The JVs will finally contribute a net profit in 2018 at Bt500-600mn from transfers of THE LINE Jatujak- Mochit and THE LINE Ratchathewi. Earnings cut. We cut forecast by 19% to Bt3.0bn in 2016 and 20% to Bt3.1bn n 2017, small 3% growth for both years. Changes include: 1) reducing revenue from condos as seven condos will be completed this year and only two next year; 2) trim gross margin by 200bps for 2016 and 90bps for 2017 as attempts to move old stock cuts margin (about 85% of the Bt6bn in finished stock is in provinces where housing demand is weak); and 3) lower losses from JVs in 2016 due to earlier revenue recognition of THE LINE Sukhumvit 71 but a net loss of Bt250mn rather than a net profit of Bt229mn in 2017 on launch delay for THE LINE Wongwasang. Current backlog of Bt20.6bn secures 49% of 2016. We now line up with consensus for 2016 but are 8% below for 2017.   

 

Risk/reward attractive. SIRI has a strong brand with book value growing and a sustainable high dividend. In our view, the stock should not be trading below its book value. Following our earnings revision, we cut TP to Bt2.0/share from Bt2.4/share after lowering PBV valuation to 1.0x from 1.25x in tandem with narrower ROE. With attractive TTR of 38% and the highest dividend yield of 6.7%, we maintain BUY.