The YoY 2Q-3Q14 earnings turnaround will limit the depth of any share price fall caused by weak presales—no new condos launched in 1Q14 and no launches are slated for 2Q-3Q14. ANAN’s FY14 business plan is conservative. Launches will dive 56% to Bt15bn this year and presales will plunge 54% to Bt9.7bn. We maintain a HOLD rating with an unchanged YE14 target price of Bt2.0, pegged to a PER of 8x. The stock currently trades at an FY14 PER of 9.5x, near our ResDev coverage mean.
YoY bottom-line recovery for 1Q14, but far below our estimate
ANAN reported a core profit of Bt110m for 1Q14, up 115% YoY but down 89% QoQ. Posted earnings were 36% below our estimate, due to disappointing GM and management income. The remaining units at four Ideo Mobi-branded condos led 71% YoY residential sales expansion. However, residential GM fell from 39.8% in 1Q13 to 33.9% in 1Q14 because last year its Morph 38 condo yielded super-high GM. We maintain our model unchanged; 1Q14 profit represents 15% of our full-year forecast (13% of the street). Besides, the end-March presales backlog of Bt19bn secures 78% of our FY14 residential revenue forecast.
Strong 2Q-3Q14 earnings outlook, but weak 4Q14 prospects
2Q-3Q14 earnings will turn around YoY (core losses of Bt48m in 2Q13 and Bt91m in 3Q14). ANAN will start transferring Elio Sukhumvit 64 (Bt1.5bn; 76% booked) in 2Q14 (no new condo started transferring in 1Q14). Thus, 2Q14 earnings will rise QoQ, led by condo revenue expansion. However, profit in 4Q14 will dive YoY (and trail peers) because of the high base set by the record 4Q13 top- and bottom-line.
Leverage is on the rise with new debenture issuance
ANAN’s net gearing ratio rose from 0.3x at YE13 to 0.6x at end-March. We forecast net gearing of 1x at end-June, due to a Bt4bn debenture issue on May 12 (5.4% coupon; three-year tenor). The leverage ratio will decline to 0.8x at end-Sept after a Bt2.6bn debt repayment in July. Despite the leverage hike, there is no risk of recapitalization.
Pre-sales growth to resume in 4Q14
Presales dived by 26% YoY and 78% QoQ to Bt2.1bn in 1Q14, due to a plunge in condo bookings (down by 41% YoY and 84% QoQ to Bt1.5bn); note that low-rise presales jumped by 77% YoY and 71% QoQ to Bt679m. The firm won’t launch any new developments in 9M14, due to the unfavorable prevailing political and economic conditions. ANAN plans to launch four condos worth a total of Bt15bn in 4Q14 (three wholly-owned projects and a JV with a Japanese partner). Thus, presales won’t improve till 4Q14. They will boost revenue visibility for FY16 onward.