Property Sector

Prefer landed property developers: PS and QH are top picks

We are still positive on the Thai property sector in 2013 on the back of

rising household income, rising consumer confidence (hitting a 15 month

high in December 2012), and low interest rate environment.

But given the uncertainty surrounding the availability of feasible land plot

and the extent of the increase in land cost for condo developers, we

reiterate our preference for developers that focus on landed property

segment given that they could potentially benefit from the city expansion

under the new city plan.

Our top picks are Pruksa Real Estate (PS TB, Buy, TP THB28) and

Quality House (QH TB, Buy, TP THB2.9). They are Thailand's leading

landed property developers with FY13F EPS growth of 28-29%.

For Pruksa:

Valuation Methodology Our TP of THB28 is based on P/E multiple as Thai property developers' share prices are driven by

earnings, in our view. Our target P/E multiple of 11x is derived from FY13F ROE of 24%, growth of 4%, and CoE of 12% using

the following equation: Forward P/E = (1-(g/ROE))/(CoE - g) The derived P/E is in line with historical average PE of 11x and is

within the mid-cycle range of 7-14x.

Risks that may impede the achievement of the target price The key risks are interest rate hikes, implementation of cooling

measures and lower-than-expected sales.

For Quality Houses:

Valuation Methodology We believe that sum of the parts (SOTP) is appropriate as 30-50% of QH's earnings come from its

associates across a number of sectors (i.e. bank, and retailing). We value QH's core business using a PE multiple as earnings

have been a key driver to the share prices of Thai property companies. Our target housing P/E multiple of 12x is derived using

FY13F ROE of 13%, growth of 4%, and COE of 10%. We arrive at a target price of THB2.90.

Risks that may impede the achievement of the target price The key risks in our view are interest rate hikes, implementation

of cooling measures and lower-than-expected sales.