Quality Houses

Beat all estimates; now looking ahead to a YoY jump in 1Q13 earnings

Quality Houses Plc (QH)

Far above our estimate

QH announced a 4Q12 net profit of Bt717m, up 581% YoY but down 32% QoQ. In 3Q12, QH posted a Bt697m net-of-tax gain from the sale of three serviced apartment buildings to a property fund (QHHR). Core profit in 4Q12 was Bt717m, up substantially from Bt49m in 4Q11 and growth of 117% QoQ. The result was far above our estimate of Bt501m and the consensus number of Bt516m, due to fatter GM and lower interest expenses than expected.

QH announced an FY12 DPS of Bt0.12 (beat all estimates), a 3.1% yield. XD on April 24; payment on May 13.

Results highlights

The hefty core earnings growth was driven by QH's best housing revenue since 1Q10 and its fattest housing GM since FY08. The firm posted Bt4.5bn in housing revenue for 4Q12, up by 198% YoY and 52% QoQ—64% low-rise and 36% condo (led by The Trust Resident Pinklao). Housing GM was 31.9%, up by 1.9% YoY and 1.2% QoQ. The SG&A/revenue ratio plunged from 41% in 4Q11 to 18% in 4Q12, as QH set a Bt91m provision on assets related to the 4Q11 flooding. Equity income from affiliates (HMPRO, LHBANK, QHPF and QHHR) jumped by 23% YoY and 29% QoQ to Bt240m. Net gearing dipped from 1.5x at end-Sept to 1.4x at YE12.

Outlook

QH will report a YoY jump in 1Q13 earnings, driven by housing revenue. Low-rise presales in January doubled YoY to Bt1bn. The firm will start transferring the Casa Condo, Chiangmai in March (Bt400m; 80% booked). 1Q13 housing GM is expected to fatten to nearly 32percent from the low base of 29.6percent set by 1Q12.

What's changed?

We have revised up our profit forecasts to Bt2.5bn (from Bt1.8bn) for FY13 and to Bt3bn for FY14 (from Bt2bn) to factor in QH's aggressive business plan. The presales backlog secures 30% of our FY13 revenue projection. We have upgraded our FY13 housing revenue assumption by 27% to Bt17.8bn (in line with management's target of Bt18bn, up 50% YoY) and our GM assumption by 1% to 32% (QH guidance). The firm should deliver FY13 core profit growth of 49% YoY.

Recommendation

Our TRADING BUY rating stands with an upgraded target price of Bt4.30 (up from Bt2.80) to factor in our expanded expectations for earnings. Our target is calculated from the sum-of-the-parts—a re-rated target housing PER of 15x (2SDs above its FY06-12 mean) and Bt2.0/share of investment value. A short-term price catalyst would be a gain exceeding Bt100m from the sale of Center Point Saladaeng in 2Q13 (upside to our forecast). QH has substantial hidden investment value—stakes in HMPRO, LHBANK, QHPF and QHHR—equal to 52% of QH's market capitalization.