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Housing Sector

Sales recover. High profit growth foreseen in 2H14 Neutral

Housing Sector

- Presales hit bottom in 1Q14, before recovering in 2Q14

The housing market showed apparent deceleration in 1Q14. Presales of

15 companies under our coverage in the quarter equated to B38bn or a

decrease of 23%qoq and 51%yoy, marking the fifth consecutive

quarter of contraction and a record low since the flooding crisis in late

2011. Customers became more hesitant and temporarily stayed away

from home purchase due to the current political uncertainty, while

housing developers postponed a launch of new projects. However,

presales would revive again in 2Q14 and normalize in the second half

of the year. Sales of both horizontal and condominium projects have

increased significantly in March - May 2014 and developers have

started to launch condominium projects again. Rejection rate has been

usual, while the policy interest rate has remained low at 2% and might

stabilize at that level in the rest of the year, thus favorable for homebuying

loan (the MPC is meeting on June 18, 2014, which might trigger

speculation in housing stocks again).

- 1Q14 profit grows 20%yoy. Strong growth foreseen in 2H14

1Q14 normalized profit of 15 housing companies under our coverage

was B5.3bn, down 41%qoq because of substantial condominium

transfer in late 2013 but up 20%yoy. Total revenue recognition

increased 13%yoy to B42bn, mainly from growing horizontal projects.

For the rest of the year, the profit is projected to stay flat qoq in 2Q14

and then recover in 2H14 from a transfer of 54 new condominium

projects, up from 32 projects in 1H14. Backlog at end-1Q14 has been

B265bn (B225bn for condominiums and B40bn for horizontal projects);

over B100bn of which is being transferred this year. Accordingly, we

estimate 2014 revenue to grow 13%yoy or B23.6bn. Based on

normalized profit margin assumption of 14.3%, the normalized profit

will be B31.6bn or the growth of 17.2%yoy.

- Selective buy for laggard stocks: RML, AP, ANAN

Presales have already bottomed out while 2014 profit would grow

continuously from a transfer of backlog. We, therefore, maintain

NEUTRAL for the housing sector and reiterate our recommendation of

selective buy, switching from SPALI and PS, whose share prices are

already close to fair value, to laggard stocks with low downside and

high upside: RML (FV@B2.38 - 2014 profit would grow 90%yoy from a

transfer of 185 Rajadamri project; P/E ratio is low at 4.2x);

AP(FV@B7.10 - the share price is still cheaper than other mid- and

big-cap housing stocks; 2014 profit would grow 11%yoy);

ANAN(FV@B2.90) - regular profit can be expected every quarter after

new projects gradually finish construction.




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