Pruksa Real Estate

Share price steps up to fair value. Revise down from "BUY" to "HOLD"

Pruksa Real Estate Plc (PS)

2013: good year for PS, marching toward new high

Keeping a watchful eye on PS, we're convinced that 2013 would still be a

good year for the company. PS would march toward new high for its

revenue and net profit. There would be openings of 78 new projects worth

of B55bn in total which can be divided into 47 townhouse projects (TH), 16

detached-house projects (SDH), 13 condominium projects and 2

international projects. At present, the company has bought lands in order to

prepare for 40 new projects. For projects during development at end-2012,

there are 141 projects worth of B49.3bn. Accordingly, PS is projected to

make presales worth of B35.4bn or 21% YoY increase, which is considered

a record high. In terms of revenue recognition, the management has aimed

at B34-36bn for the target in 2013 due to the transfer of 7 newly-finished

condominium projects (backlog at year's end is B9.1bn). For the horizontal

projects after adoption of REM system, the business cycle of SDH and TH

has declined notably to 167 days (counting from trading day until the day of

transfer). In terms of PS's profitability, it's projected to increase due to

revenue from condominiums that is projected to be recognized by B10bn,

which are of projects with the average gross margin over 40% and the

average net profit margin at 18.3%. Accordingly, 2013 net profit is

estimated to stand at B5.18bn, rising by 32.75% YoY.

2014 revenue growth of horizontal projects to get boosted

In 2013, we believe that PS would achieve its goals with no difficulties. For

2014, the company would have to rely on efficient management and

planning in order to enhance continuous growth because the backlog of

condominium projects at end-2012 for transfer in 2014 that would decline

to B7.37bn. If the company aims at 10% growth of revenue, this means

that the revenue must be made no less than B38bn. Accordingly, PS would

have to make more than B30bn of income in 2014, mostly depending on

horizontal projects or condominium development with construction period

not over 12 months to help contribute the revenue. Nevertheless, apart

from a crucial factor from the management's preparation, investors should

keep an eye on the demand in the housing market whether how much it

would still have grown.

Share price rises close to fair value. Revise down from "BUY" to "HOLD"

After recommending "BUY" for PS in April 2012, investors should have

obtained almost 100% of return. However, the current share price has

already moved close to the fair value at end-2013 which is 12x PER or

B28.08. Combined with the dividend yield that has dropped to only 2.2%,

we revise down our recommendation from "BUY" to "HOLD" for PS.