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Supalai

Growth backed by large backlog with high deposits BUY

Supalai Plc (SPALI)

SPALI requires the highest buyer down payments of all developers, reducing risk of cancelations. Its large backlog and high proportion of backlog to revenue underscores our conviction that SPALI will not disappoint despite the lackluster housing market. Presales are also showing better signs and may even grow QoQ in 2Q14. Against a 2014 growth forecast of 41%, the stock is trading at an undemanding PER of 7.5x of 2014F, below its peers' PER of 8-14x, against a growth outlook that is substantially higher than peers. We like SPALI the best in the sector and BUY.

Large and quality backlog. SPALI has a record high backlog of Bt40.9bn, securing 91% of our 2014 revenue forecast, far better than the 30-70percent for peers, giving its profit the highest visibility of the sector. Of this, Bt16.5bn will be transferred to clients this year, underwriting 33% revenue growth. Including additional presales, even at a conservative assumption that selling rate for low-rise remains at the January-February 2014 average of Bt433mn a month, our earnings growth forecast of 41% is achievable. Not only is its backlog large, it is also good quality, as SPALI has banked the highest down payments at 12% versus 5-8percent for AP, LH, LPN, PS, QH and SIRI. In our view, the higher advance payments make for a more solid backlog and lower the risk of cancellation or abandonment.

Look for presales growth QoQ. Presales were Bt1.7bn in 2M14, a 15% drop YoY, battered by weak demand and no new condo launch. Low-rise housing presales were stable YoY and we see good signs of recovery MoM at Bt513mn in February from Bt353mn in January. Unlike its competitors - who are putting new launches on hold - SPALI launched four projects (3 low-rise and 1 condo) in 1Q14, rather than the planned three low-rise projects, shifting Supalai Loft Chaengwattana condo to 1Q14 from 2Q14. This condo was well received, with a good take-up rate of 70% at the official March 22-23 launch, aided by its good location in an area where supply is limited. We expect contracts for Supalai Loft Chaengwattana to be signed and presales booked in 2Q14, suggesting higher presales QoQ.

Better performance YoY in 1Q14F on more deed transfers and a higher margin. This will come largely from Supalai Premier Ratchthewi. This condo was completed last year but deed transfers were held up by the "Bangkok shutdown"; transfers are now back on track with 70% of the project transferred at present. Earnings will be released on May 15.

Reiterate BUY. Though SPALI's share has outperformed the SET by 15% YTD, we do not believe it fully reflects the company's strong outlook. At last close of Bt17.7, it is still trading at an undemanding PER of 7.5x, below peers' 8-14x - set against a background of superior growth of 41% this year for SPALI, versus a range of

-18% to +23percent for peers. We remain BUYers.






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