We accompanied Mr Tritecha Tangmatitham, an executive director, to meet Thai institutional fund managers. He reaffirmed our view that SPALI will achieve impressive profit growth in FY14 (the best of our ResDev coverage). In the interim, it will post record earnings for 4Q13 (Feb 25). The stock trades at a cheap FY14 PER of 7.6x (the mean of our coverage is 8.0x). Our YE14 target price is Bt22, pegged to a PER of 10x. BUY!
Scope for upside to our earnings model
Mr Tritecha is confident in SPALI’s FY14 residential revenue target of Bt20bn (up 58% YoY)—78% of the number is secured by presales. Given high downpayments of 18-20% for SPALI’s condos, its presales backlog is high quality. He noted that the mean cancellation rate among SPALI condo buyers is low at 1% and the mortgage rejection rate is 3-4%. While the revenue target is virtually assured, launch execution and presales might disappoint if the political unrest persists. The FY14 launch plan is Bt33bn, up 87% YoY, and the presales target is Bt22bn, up 18% YoY.
We see scope for upside to our FY14 profit forecast of 10-15%. Our residential revenue projection is Bt16bn (16% below SPALI’s target), up 30% YoY. The firm’s top-line visibility is the clearest of our coverage (95% of our FY14 revenue forecast [78% of SPALI’s] is secured by presales; our coverage mean is 53%). Smoother quarterly earnings profile for FY14
We preliminarily estimate 1Q14 profit growth of 20% YoY for SPALI versus a flattish result for our coverage. In FY14, the firm will post smoother quarterly earnings than it did in FY13 (1H14 profit should comprise 35% of the FY14 total; 1H13 profit comprised only 27% of the FY13 total). Profitability ratio guidance
Management conservatively guides for flat YoY GM of 40-41% for FY14 (the fattest of our coverage). It expects the SG&A/sales ratio to dip from 11-12% in FY13 to 10% in FY14, due to top-line expansion (note that our SG&A/sales ratio assumption is 10%). Construction cost pressure will ease this year. In our model, we assume that FY14 residential GM will fatten by 20 bps to 41.20%, due to a higher proportion of condo revenue in the sales mix—from 55% in FY13 to 60-65% (condos yield fatter GM than low-rise). De-leveraging trend
The net-gearing ratio is expected to decline from 0.7x at end-Sept 2013 to 0.6x at YE13 and to 0.4-0.5x at YE14 (the second-lowest among our coverage, due to huge transference). The clean balance sheet will enable the purchase of new land plots (the FY14 CAPEX budget is Bt5bn). In the prevailing climate of weak GDP growth and political unrest, there may be opportunities to buy land at favorable prices (for launches in FY15-16).