High visibility keeps it a favorite even in this climate
Supalai Plc (SPALI)
2013 operations miss its targets. SPALI closed 2013 with presales of Bt18.6bn, a contraction of 21% YoY, slightly below its target of Bt20bn (revised down from Bt26bn). This came entirely from a 31% drop in condo presales; low-rise house sales rose 6%. Title deed transfers came to ~Bt12.6bn, marginal growth of 8% YoY, below its target of Bt13.5bn and our forecast of Bt13bn. This arose out of the “Bangkok shutdown” that hampered transfers for Supalai Premer Ratchthewi, located in the protest area.
2014 business plan. Assuming an end to the political unrest in 1Q14, the company expects presales to grow 18% to Bt22bn (+20% to Bt14bn for condo and +15% to Bt8bn for low-rise houses), with revenue growing a higher 58% to Bt20bn (+90% to Bt12bn for condo and +26% to Bt8bn for low-rise houses), below previous guidance of more than Bt20bn. Backing this is a jump in new launches of 86% to Bt33bn (18 low-rise projects with a value of Bt14.3bn and eight condos valued at Bt18.7bn).
More interest in low-rise projects in provinces. SPALI plans for provincial presales to contribute 27% of total presales in 2014, up from 25% in 2013. It will achieve this by launching more low-rise projects in the provinces and entering two new provinces - Ubon Ratchathani and Nakorn Ratchasima.
Earnings revision. Taking a more conservative stance in this unstable climate, we cut 2014F by 16% to Bt4.1bn and 2015F by 15% to Bt4.3bn. We project revenue of Bt18bn for 2014, 10% below the company’s guidance, as we assume 5% revenue growth for low-rise and only 80% of condo backlog transferred versus SPALI’s forecast of 85%. Current backlog of Bt39.2bn secures 82% of our 2014F and 67% of 2015F. Our forecasts are now 9% below consensus for 2013 and 2015, but similar for 2014.
Reiterate BUY and sector top pick. After the reduction in forecast and dropping PBV to 2.5x from 3x to be conservative, we lower our PT to Bt21/share, an undemanding 2014F PER of only 8.8x. SPALI has a solid growth outlook and better visibility than peers: even if it can book revenue only from current backlog (no revenue from new sales) with transfer rate at 80% for condo and 90% for low-rise, SPALI would still be able to grow revenue by 15% YoY, whereas peers would suffer a contraction. On this basis we feel SPALI deserves to remain a BUY and to be sector top pick.