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AP (Thailand)

Higher revenue target prompts earnings forecast upgrade

Investment thesis

Last week, we accompanied AP executives on an NDR to Singapore. The fund managers we met were positively surprised that residential demand had normalized since the coup. Demand-supply dynamics benefit big listed firms in 2H14. AP upped its FY14 residential revenue target from Bt21bn to Bt22bn, due to stronger low-rise bookings. The fund managers concurred that the stock is too cheap—an FY14 PER of only 8.5x, a deep discount to the 12.6x mean of our ResDev coverage. Our YE14 target price rises from Bt6.8 to Bt8.0 to factor in a profit forecast upgrade and a PER re-rating from 9.0x to 10x (1 SD above its FY06-13 mean). TRADING BUY!

Earnings forecast upgraded to reflect new FY14 revenue target

We have revised up our FY14 core profit projection 5% to a new record of Bt2.3bn, prompted by a new FY14 residential revenue assumption—up 5% to Bt21.6bn for FY14 (slightly below AP's target of Bt22bn). The firm has proved low transference risk. It guides for 27% YoY residential revenue growth in 1H14 to Bt9bn (42% of our full-year forecast). The presales backlog secures 82% of our FY14 residential revenue forecast. Note that the consensus revenue assumption is 10% below our model and 11% below AP's target. We expect an upgrade soon.

2Q14 profit leadership in the sector

AP is expected to post a 2Q14 core profit of Bt666m, up by 47% YoY and 156% QoQ and the highest growth of our ResDev coverage (which averages 6% YoY and 48% QoQ). Residential sales will post expansion of 30% YoY and 59% QoQ to Bt5.5bn, led by low-rise and the start of transference of Life Rachadapisek condo (Bt3.5bn, 83% booked). AP will deliver smooth quarterly earnings through FY14. We estimate a core profit breakdown of 40% in 1H14 and 60% in 2H14 (34:66 in FY13). Aspire Sukhumvit 48 (Bt2.6bn, 43% booked) will start transferring in 3Q14 (brought forward from a previous plan of 4Q14). In 4Q14, three big condos will start transferring (Figure 7).

All-time high low-rises performances

Low-rise business (52% of AP's presales target and 51% of its revenue target) is impressive with record low-rise presales of Bt2.9bn in 2Q14. The firm should set new record low-rise presales of about Bt3bn per quarter in 3Q-4Q14, building market share at the expense of smaller developers. It plans to launch new low-rise projects valued at Bt5.3bn in 2H14.

Achievable FY14 presales target with potential new JV condo in 4Q14

Management is confident that it will deliver its FY14 presales target of Bt21bn, up 38% YoY (low-rise up 30%, condos up 49%). Presales in 3Q-4Q14 will rise YoY (down QoQ for 3Q14 due to a high 2Q14 base; up QoQ in 4Q14). AP is likely to launch one more JV condo (Bt3bn) with Mitsubishi Estate Group in 4Q14, which would constitute upside to its 2H14 condo launch program from two condos (Bt3.5bn in total).

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