Supalai
Shoved up by low-rise, upgrade to BUY
Supalai Plc (SPALI)
Low-rise presales were solid and beat our estimates and its own full year target, backed by its forward-looking strategy. We raise our presales forecast for low-rise by 5% and raise earnings forecast by 8% for each of 2016-2017. The improved ROE and rolling TP over to mid-2017 raises our PT to Bt28/sh, implying attractive TTR of 29%. Though SPALI has outperformed the SET in past months, we believe this does not yet fully incorporate the better 2016-2018 and we upgrade to BUY.
Low-rise presales very good. SPALI’s low-rise presales jumped an impressive 49% YoY to Bt6.8bn in 1H16, accounting for 53% of its full year target, and placing it to beat both its full year target and our forecast. The company says this was due to better presales at existing projects both in greater Bangkok and the provinces. Without government stimulus, its presales were still a good Bt1.2bn in June, strong recovery from April and May, and 28% higher than the monthly average for 2015. We look for this presales momentum to continue in 2H16 and raise our low-rise presales forecast by 5% to Bt13.4bn, +18% YoY.
Forward-looking strategy. Its success was made possible by its dynamic business model in which it has shifted focus to low-rise, upped new launches and bulked up available stock, which are key to low-rise presales. It has also engaged in regular product improvement, modernizing the design, improving function, upgrading building materials, adding more facilities and improving the project environment, as well as expanding to higher-end segments. SPALI said it gets good support from clients.
A beneficiary of provincial recovery. Two out of three key drivers for provincial sales are showing some signs of recovery – rising agricultural prices and tourists. Both bring more money into the provinces, raising purchasing power and housing demand. SPALI is positioned to benefit from this, as it has exposure in eleven major provinces throughout the country and excels in the low-rise segment which meets real demand. Unlike peers, SPALI has raised its presence in the provinces with the launch of 14 projects valued at Bt8.9bn this year, 24% of its total launches. The provinces contributed a high 26% of total presales in 1H16.
Earnings and TP raised. We raise forecast by 8% in each of 2016-2017, to B5.0bn (EPS
Bt2.9) in 2016 and Bt6.0bn (EPS Bt3.5) in 2017, incorporating an upgrade in low-rise presales and sooner revenue recognition due to more finished stock. Its current backlog of Bt41bn secures 87% of 2016, 45% of 2017 and 28% of 2018, giving it higher visibility and covering a longer period (through 2018) compared to peers. We are ahead of the market by 7% for 2016 and 14% for 2017.
Upgrade to BUY. Following the earnings upgrade, we raise TP to Bt28/sh from Bt20/sh as we raise PBV to 2.0x from 1.5x on an improved ROE and rolling over to mid-2017. At last close, the stock provides attractive TTR of 29%. We upgrade to BUY from Neutral.
