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Quality Houses

Operations on track BUY

Quality Houses Plc (QH)

May presales up strongly MoM to Bt1.7bn, up 70% MoM, off condo presales of

Bt600mn (from Bt150mn) thanks to presales of The Trust Condo Amata Nakorn. Lowrise

presales were Bt1.1bn, 29% growth from April's correction due to long national

holidays. This brings presales to Bt6.8bn for 5M14 or 32% of its full year target. We look

for sequential presales growth QoQ for this year.

Coup neutral to property sales. We maintain our view that low-rise presales will

grow 5-10%, but condo presales will drop substantially. We expect 2H14 sales to

improve HoH. In the near term, clients could delay deed transfers in June, waiting for a

property stimulus program. For the longer term, this will have no impact. Low-rise

presales for the first week after the coup (May 24-30) slowed to Bt100mn from the

weekly average of Bt330mn in the first three weeks of May, but we believe it is too

early to assume a trend. The company said some TH presales will not be included in

presales numbers until clients are pre-approved for their mortgage, generally within a

few weeks.

New launches maintained. QH confirms that it will launch 26 projects with sales

value of Bt22.8bn this year. In April-May, it held soft launches of two condos - Casa

Condo at CMU in Chiang Mai and Q Seaside Hua Hin, with take-up rate of 10% and 30%

respectively. Pre-bookings of Q Seaside Hua Hin are not included in presales yet, as QH

will officially list them as booked only after it receives its EIA permit. QH has put off the

opening of Bt483mn QH Condo Phaholyothin Chiang Rai, waiting for better sentiment,

though the project is not in the earthquake area. If, in the worst case, the project is

postponed or canceled, we expect it would not hinder QH from achieving its presales

target.

Look for sequential revenue growth QoQ in 2014. We expect improvement QoQ in

2Q14, backed by transfers of Casa Condo Ratchada-Ratchapruk, for which there is

Bt1.5bn backlog awaiting recognition from 2Q14. Gross margin for this project is a high

37%, continuing the trend for a wider gross margin. Note that its real estate gross

margin was 31.8% in 1Q14. It will release results by mid-August. Sequential growth of

revenue recognition is expected in 3Q14 and 4Q14 as The Trust Condo Hua Hin (Bt654

backlog) and Q. House Sukhumvit 79 (Bt1.8bn backlog) will be completed in 3Q14 and

4Q14 respectively. This is a change from our previous view that 3Q14 would be peak.

Reiterate BUY with TP of Bt5. QH is cheap in our view. With huge hidden value of

investments, at last close it was trading at 4.3x and 0.7x adjusted 2014 PER and PBV

(deducting investment value from share price) respectively. Growing presales and

revenue QoQ in 2Q14 coupled with the plan to sell LHBANK shares could be near term

catalysts. We remain BUYers.


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