QH sees 2013 as a growth year BUYQuality Houses Plc (QH)
Strong earnings growth. A rise in our revenue and net profit assumptions leads to a
raise in 2013 forecast of 18% and 24percent for 2014. We now expect real estate profit to
double this year after turning around last year, thanks to strong revenue growth -
especially from condo and TH - and improved net profit margin. Current backlog of
Bt9.2bn secures 40% of 2013 and 10% of 2014. We see a possibility of upside from a
higher gross margin than expected. Our forecast is conservative at 31% versus >32%
company guidance. Income from associates is expected to grow 40% in 2013 and 30% in
2014 and the sale of an asset is expected to bring a Bt100mn net gain in 1Q13.
Presales to grow 20%. QH targets presales growth of 20% YoY to Bt20bn this year,
solely from low-rise homes, with condo flat. In 2M13 presales were Bt2.4bn or 12% of
its full year target. Assuming it can keep its low-rise presales at this rate throughout
the year, it can achieve our forecast, backed by front-loaded new launches and the
expectation of better presales from 2M13 on.
a) More emphasis on mid- to low-end segments. New mid- to low-end
product launches (priced below Bt5mn/unit) will rise to 82% of the whole from 76%
last year, under its Casa, The Trust and Gusto brands. QH's main competitive edge
lies in its higher product quality and location than competitors and this allows it to
set its prices 7-8% above theirs. QH enjoys a wide gross margin of 31-35percent for these
mid- to low-end brands, higher than its high-end brands, where margin is 30%. QH
has switched back to presales for the mid- to low-end segment but is still prebuilt
for its high-end products.
b) More condo and TH. To better meet the change in lifestyle, QH will boost the
new launches of condos by 40% YoY to Bt7.7bn this year and low-end TH by 35% YoY
to Bt3.7bn, a new market that it successfully entered last year.
c) Continuing to expand in provinces. QH intends to raise presales from the
provinces from about 10% of total presales last year to 20% in 2014, moving up in
line with the rapid growth of urbanization in provinces. QH will expand to Chiang
Rai, Nakhon Prathom, Petchaburi, and Prachuap Khiri Khan.
Raising price target. We raise PT to Bt4.8/share from Bt3.6/share after re-rating our
valuation to 2x 2013 PBV from 1x of in response to an improvement in ROE to 17-19%
in 2013-2014 from 12% in 2012. At a strong 3-yr CAGR of 65percent for 2011-2014, valuation is
cheapest versus peers at 0.2X PEG.