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Preuksa Real Estate
Phatra Securities has downgraded Preuksa Real Estate from "buy" to "neutral" with a fair-value estimate of Bt6.90 per share to reflect higher revenue risk anticipated for next year.
Preuksa had weak pre-sales of only Bt1.6 billion last quarter, down 11 per cent year on year and quarter on quarter. It booked Bt5.3 billion in pre-sales for the first nine months of the year. The broker did not see continued pre-sales momentum after Preuksa launched five to six projects in the second quarter. Management attributed weak orders to the lack of both promotions and projects launched in the quarter. Although the property developer plans to unveil promotions as well as new projects to boost pre-sales this quarter, the broker now expects 2006 pre-sales to be only Bt7.3 billion, falling short of the broker's previous forecast of Bt8.4 billion and the company's own target of Bt9 billion. This would result in higher revenue risk next year, given that the developer's backlog should drop to Bt3.8 billion by year-end. This implies that Preuksa will rely more on new presales in 2007, especially in the first half, to grow its revenues, as it would normally take four to six months to convert pre-sales into revenue. With slower pre-sales this year, the broker forecasts that Preuksa will achieve revenue growth of 6 per cent next year - lower than the industry average of 16 per cent. Preuksa is expected to post weak third-quarter earnings of Bt285 million, down 18 per cent both year on year and quarter on quarter, due to the slowdown in transfers in the period. The broker believes the weak results will come as an unwelcome surprise to the market since Preuksa had a sizeable backlog of Bt4 billion at the end of the second quarter. But this was due to a technical problem involving transfers and should be cleared up this quarter, the broker said. It believes Preuksa will continue to concentrate on the lower unit-price segment - including town houses under the Preuksa and Preuksa Ville brand names - where it is cost-competitive, as well as smaller single-family homes under the Preuksa Village brand. This should reduce the contribution from projects under the Passorn brand for middle-market single-family homes to 20 per cent of total pre-sales next year from 35 per cent last year. The company has raised its town-house prices in this half of the year and this should lead to better town-house margins next year. The broker assumes the property developer's town-house margins will increase to 35.3 per cent next year from 34 per cent this year.
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