Quality Houses

2013: Year of growth after turnaround in 2012 BUY

Quality Houses Plc (QH)

2012 presales beat target. QH's presales beat expectations, reaching Bt16.2bn, +33%

YoY and above market estimate of Bt15bn, despite putting off ~Bt11bn in new

launches upon a change in policy to prebuilt from presales for low-rise and the decision

to launch condos only when the EIA is approved. Furthermore, it has ~Bt400mn in prebookings

for The Trust Residence Hua Hin, which will be added to presales in 2013 after

the official launch early this year.

2012 transfers in line. Though transfers for The Trust Residence Pinklao, the major

revenue contributor in 4Q12, came to only Bt1.5bn, below its target of Bt1.8bn, QH

booked revenue of ~Bt12bn, in line with our forecast. This was made possible by the

strong take-up for prebuilt houses to the point where stock has been taken up entirely

for some new projects, including Casa Grand Outer Ring Road-On-Nut, Casa Regent

Kaset-Nawamintr, and Casa Premium Ratchapruk-Rama 5. It also has pre-bookings for

these projects, which will morph into sales when the units are completed.

Moderate backlog. Current backlog is ~Bt5.9bn at end-2012, securing 23% of our 2013

forecast and 11% of 2014. Though this looks little compared to peers, it is considered to

be in line with its business model that weights low-rise rather than condo plus prebuilt

sales for low-rise, for which revenue is booked immediately.

Moderate backlog. Current backlog is ~Bt5.9bn at end-2012, securing 23% of our 2013

forecast and 11% of 2014. Though this looks little compared to peers, it is considered to

be in line with its business model that weights low-rise rather than condo plus prebuilt

sales for low-rise, for which revenue is booked immediately.

Upbeat outlook for 2013. We raise our forecast by 15.2% to Bt2.4bn for 2013 and

15.4% to Bt2.8bn for 2014 after raising assumed revenue recognition and margin. We

increase condo transfers by 20% to Bt5.5bn partly due to backlog carried forward for

The Trust Residence Pinklao and quicker transfers. We expect strong sales momentum

for low-rise housing and recovery of flood-affected projects because last year was free

from floods. Note that, in 2012, these projects marked up sales of only 30-40% of those

seen in a normal year. We also lift gross margin to 31percent from 30% in recognition of

better cost control and higher selling price. QH expects strong presales growth in 2013,

supported by continued strong demand for low-rise (+40%) and condos, with plans to

launch five projects worth ~Bt10bn versus four projects worth Bt4bn last year.

Selling assets in 2013. QH plans to sell Centre Point Silom to QHHR and Centre Point

Saladaeng to a private entity when their hotel licenses are approved. We estimate

transaction size at Bt1bn with a gain of about Bt150mn. Further upside risk lies in

HMPRO's asset spin-off to a new PFPO/REIT. We did not factor this in our forecast yet.

Maintain BUY and sector pick. We continue to like QH for its cheap valuation,

trading below its NAV of investment assets and strong growth outlook after last year's

turnaround. At a strong 3-yr CAGR of 54%, it is trading at the cheapest valuation versus

peers at 0.2X PEG. We raise QH's PT slightly to Bt3.6/share from Bt3.5/share following

earnings upgrade. With attractive TTR of 59%, we reiterate BUY on QH.