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Quality Houses

2Q14F: Superior growth QoQ BUY

Quality Houses Plc (QH)

- 2Q14 presales up 12% QoQ to Bt4.8bn; 1H14 to Bt9.1bn, 42% of its 2014 goal

- Upside to presales from possible launch of mega condo in 4Q14

- 2Q14F at Bt900mn, superior growth of 42% QoQ

- Focus shift to mid- to low-end segments paying-off

Pre-sales of Bt4.8bn in 2Q14. This is a slight drop of 8% YoY, but good growth of +12% QoQ, provided by 20% growth in condo presales to Bt1.2bn from two new launches - Q Seaside Hua-Hin in Prachuab Kirikhan and Casa Condo @ CMU in Chiang Mai, plus 9% growth in low-rise to a record high of Bt3.6bn. This brings 1H14 presales to Bt9.1bn,

-27% YoY, 42% of its full year target. With good demand momentum coupled with more launches HoH, we expect QH to achieve its full year target of Bt21.4bn, marginal growth of 5% YoY, noting this implies higher presales HoH.

Pre-sales upside risk. In addition to its plan to launch 26 projects with sales value of Bt22.8bn this year, QH may launch one mega project in 4Q14 worth Bt9.0bn (300 units) on a plot of land recently acquired on Sukhumvit Soi 6. This will be a premium product with selling price of >Bt250K/sqm or >Bt25mn/unit. This would provide upside risk to presales this year and earnings visibility for 2017.

Look for solid growth QoQ in 2Q14F (release on August 8). We estimate 2Q14F net profit of Bt900mn, solid growth of 42% QoQ but a fall of 19% YoY. The strong QoQ growth comes from: a) the completion of two condos (Casa Condo Ratchada-Ratchapruk and The Trust Condo Hua Hin) that helped double condo revenue to Bt1.2bn; b) strong low-rise presales in the period - we forecast 10% revenue growth; and c) wider margin of 32.7% versus 31.8% in 1Q14 driven by a high margin of 37percent for Casa Condo Ratchada-Ratchapruk. This would bring 1H14 profit to Bt1.5bn, accounting for 49% of our full year forecast.

Shift down paying off. In 2012 QH began shifting its focus to mid- to low-end products from its traditional high end and this has raised the portion of new TH launches to 37% in 2014 from only 5% in 2011 and mid- to low-end products to 95percent from 64%. This move is paying off, with presales and revenue from these brands (Casa, Gusto, and The Trust) dominating at 70-80% of the total. It has now developed two new 3-storey SDH models (unit price
Reiterate BUY. We like QH for its cheap valuation. At last close, it is trading at an undemanding adjusted PER of 5.2x and PBV of 0.9x of 2014F. In the near term, strong earnings growth in 2Q14, upside to presales and potential liquidation of LHBANK are catalysts. We remain BUYers with unchanged TP of Bt5/share

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