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Residential Property

Key takeaways from BLS Property Day

Residential Property

Investment thesis

We hosted the BLS Property Day on July 4. The speakers at our event reaffirmed our theme call of a ResDev sector bounce in July-Sept, led by a 2Q14 presales recovery and a strong 2H14 outlook. We see scope for upside to our earnings models. Although our ResDev coverage has rallied 16% MoM (we went bullish in early June), share prices have further to run, we believe, as YE15 target prices suggest 7-36% upside to YE14 target prices. A coverage valuation re-rating is deserved from an FY14 PER of 13.7x to 14.5x (1SD above its FY06-13 mean). We prefer big developers in the early stage of the sector bounce (LPN, PS, SPALI and LH). Smaller firms (AP) will catch up later.

Pre-sales recovery; scope for upside to earnings forecasts

Aggregate 2Q14 presales will post a jump of 55% QoQ, we believe. Low-rise presales led the recovery; condo presales should bounce in 2H14. 2Q14 low-rise presales are expected to report a record high (and new records for AP, PS and SPALI). The big developers will benefit most in the early phase of the demand recovery, as there is only modest supply available among small to mid-sized developers. There is scope for upside to our earnings models, led by project launches. The aggregate presales backlog of our coverage at end-June secure 80% of our aggregate FY14 revenue forecast.

CBRE's view

CB Richard Ellis (Thailand) believes that new mass transit infrastructure will create new areas of residential demand. Total condo supply (completed units) was 407,657 units at end-March 2014. CBRE expects it to hit 475-480k units by YE14. There are far fewer newly-completed condos in downtown Bangkok than in suburban areas. The prices of new condos should be sustained.

The highlights of each company are summarized below:

ANAN: 2Q-3Q14 YoY earnings turnaround. Strong presales in 4Q14.

AP: 2Q14 presales recovery (YoY slippage since 1Q13). A new JV condo is likely in 4Q14. AP's PER is the cheapest of our coverage.

LH: Strong 2Q14 pre-sales. We expect a good interim dividend yield of 4.7% (annualized). LH should post a record core profit for 4Q14.

LPN: An interim dividend yield is expected of 2.4-2.5% (annualized). FY15 profit growth leadership with the clearest visibility in the sector.

QH: Residential GM has the potential to beat all expectations. An interim dividend yield is expected of 2.4-2.5%.

SPALI: There is a scope for earnings upside, led by the top-line. An interim dividend is expected of 2.5-2.9% (annualized).

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