Thailand Sector Update - RHB TradeSmart...Jul 23, 2019 · According to property consultant...

Thailand Sector Update

See important disclosures at the end of this report 1

23 July 2019 Property | Real Estate

Real Estate Neutral (Maintained)

Buyer’s Market Stocks Covered 9

Ratings (Buy/Neutral/Sell): 4/ 2 / 3

Last 12m Earnings Revision Trend:

Positive

Stay NEUTRAL, Top Picks are AP Thailand and Land and Houses.

Despite more new launches in 2Q19, sector presales have yet to rebound due to weak take-up rate. We estimate sector 2Q presales to dip 3% QoQ and 32% YoY, while 1H19 presales may slip 22% YoY. Despite the soft business, share prices of major listed developers have rallied due to potential interest rate cut, hopes for more effective stimulus from the new Government, and handsome dividend yields.

New condominium launches have started to recover as at end-2Q19...

According to property consultant Colliers International Thailand, there were 26 condo projects launched in Bangkok in 2Q19, with a total of 9,632 units (+14% QoQ and +13% YoY) worth THB74.87bn. The largest amount was in June after the elections. Last month alone saw the supply of new condominium launches at 5,100 units, accounting for 53% of the total in the quarter. However, total supply of new condominiums plunged 20% YoY in 1H19 to around 18,000 units.

…but average take-up rate of new condominiums is weak. Around 72%

of new projects launched in 2Q19 are in the inner city. Hence, average prices for new condominiums in 2Q19 rose 45% QoQ and 10% YoY to THB148,365/sqm.

Meanwhile, average take-up rate of new projects was




2Q19 sector presales are likely to dip 3% QoQ and 32% YoY.

Developers with the strongest rebound in 2Q19 presales QoQ are Land and Houses (+40%), and Ananda (+27%). For 1H19, AP Thailand was the only developer with 1H19 presales growth of 20%. Pruksa’s and Land and Houses’ 1H19 presales slipped 4-5% YoY.

Presales of LPN, Ananda, Sansiri and Quality Houses for the first half accounted for only 20-30% of their full year targets. We expect some developers under our coverage to delay their new launches and amend full year guidance. Hence, the value of new launches this year may grow YoY at a high single digit rate, down from 15-18% YoY expected earlier. Note that the Real Estate Information Center (REIC) estimates for newly launched residential units to dip 5% YoY.

Figure 1: Quaterly presales Figure 2: 6M19 presales vs their full year target

Source: Company data, RHB Source: Company data, RHB

Figure 3: Quarterly newly launched condominium units Figure 4: Combined new launches by major listed developers

Source: Colliers Thailand Source: Company data, RHB

New launches this year may peak in 3Q

Value of new launches in 2Q19 according to developers’ plans may double QoQ, from a low base in 1Q. 1H19 new launches should grow around 20%+ YoY.

For 3Q, value of new launches should increase by another 30% QoQ, before softening 20-30% QoQ in 4Q (Figure 4).

High-profile newly launched condominium projects by listed developers saw less than 30% take up rate. For instance, THB20bn Supalai Icon Sathorn was 20% sold, THB8.8bn Address Siam Ratchathewi by AP was 25% sold, and THB10bn Ideo Q Phahol by Ananda was 11% sold (1st phase: 40% sold). The average take-up rate of new condominium projects stood below 50% in 2Q19 – the lowest over the past few years.




Most developers are likely to miss their guidance.

LPN, Ananda, Sansiri, Pruksa are reviewing their new launches targets given their respective weak 1H19 performances, and negative sentiment. Quality Houses, whose presales accounted for 29% of its full year target, may miss its guidance again. Land and Houses’ condominium business is soft, hence, its full year numbers are hard to achieve. Supalai and AP, on the other hand, are still keeping to their full year guidance.

Ground checks: condominium prices are under pressure. While the average

prices of newly launched condominiums rose by 45% QoQ (because they are located in prime areas), existing completed units are being offered at discounts. According to REIC, the Condominium Price Index for 2Q19 rose only 0.8% QoQ and 8% YoY, factoring such discounts.

Ready-to-move-in units of some projects of Ananda, Noble Development (NOBLE TB, NR), AP Thailand, LPN Development are priced below their presale period 2-3 years ago. We suspect that some buyers that had already put a downpayment of 15-20%, have since let go some the units. Developers therefore, need to take them back for a re-sale.

However, since developers have already received the downpayment from the first buyers, some re-sale units can be priced at a modest discount without hurting margins. But if developers are equipped with massive unsold completed inventories such as LPN and Quality Houses, they may need to give more generous discounts.

We note that of the total new condominium units launched since 2011, the highest portion (47%) is priced at THB50-100,000 per sqm (or THB1-3m per unit on average), followed by those priced at THB100-150,000 per sqm (or THB3-5m per unit on average). Given the massive suppy in this price range, developers continue to concentrate on clearing such units.

Figure 5: Average prices of newly launched condominiums Figure 6: Average price of new condominiums launched since 2011

Source: Colliers Thailand Source: Colliers Thailand

Figure 7: Newly launched residential units Figure 8: Newly completed residential units

Source: REIC Source: REIC




New stimulus may provide upside surprise

Property stimulus launched earlier were focused on the low-income group ie a cut in both housing transfer and mortgage fees to 0.01% from 2% and 1% for first homes priced less than THB1m. However, this is unlikely to spur demand because it is very hard for the low income segment to buy given their higher risk profile.

Figure 6 shows residential units priced less than THB1m per unit that accounted for approximately 10% of supply launched since 2011. However, if the fee cut is applied for units priced less than THB3m per unit or THB5m per unit, the mass market should also benefit. Around 57% and 81% of the supply are units priced less than THB3m per unit or THB5m per unit, respectively.

Developers with a large exposure (80-90%) in residential units priced less than THB3m per unit or THB5m per unit include LPN, Pruksa, Golden Land, and Supalai. The others (AP, Ananda, Land and Houses, Quality Houses and Sansiri) have 50-70% exposure in units priced at THB3m-5m per unit.

From our rough calculation should such a fee cut be applied to units priced less than THB5m per unit, LPN, Pruksa and Supalai should see their earnings improve by 10-12%; while AP, Ananda, Land and Houses, Quality Houses and Sansiri should experience less impact – with earnings improvement of 5-8%.

Meanwhile, we expect 2Q19 sector earnings to dip both YoY and QoQ, given

a high base, weak demand, and increased expenses for massive new launches. We estimate 2Q19 sector earnings to slip 27% YoY and 14% QoQ. Ananda, Land and Houses and AP may see their 2Q earnings decline meaningfully YoY, while others should also report sluggish performances. This is in line with REIC’s forecast of lower transfers of residential units in 2Q – by 10-12% – from 1Q, before rebounding in 3Q, and potentially peaking in 4Q.

Earlier, REIC expected transfers of completed units to decline 10-15% YoY, but its recent forecast show transfers of residential to plunge 18% by units, and 15% by value. Nevertheless, new completed residential units should continue to increase by 11% from projects launched in 2017-2018.

Valuation

We re-rate using P/E of pure residential stocks (AP, Supalai, Sansiri and Pruksa) to 8x, which is equivalent to around -0.5SD to long-term mean, from 7x. This is to factor in the potential good news including interest rate downtrend, and new round of property stimulus. However, we still use 7x P/E to to calculate TP of Ananda and Quality Houses as their YTD performance seem to be much lower than expected. For LPN, despite its sluggish outlook, we still apply 8x 2019F P/E (similar to peers) to come up with a new TP, as it is one of the stocks that is under both the sustainability (SETHSI) and ESG100 lists.

Shareholders restructuring

Government of Singapore Investment Corporation (GIC) divested all its holdings in Quality Houses and Land and Houses in 2018 and mid-2019, respectively, after owning these two big developers for almost 20 years.

Early-2Q19, Frasers Property (Thailand) (FPT TB, BUY, TP: THB19) made a conditional voluntary tender offer (VTO) for all the issued securities of Golden Land at THB8.50 per share. So far, non-listed Frasers Property Holding and Univentures (UV TB, NR) already agreed to sell their combined stake of 79% in Golden Land. Should Frasers Property (Thailand) acquire more than 90% of Golden Land’s total issued shares, it may proceed with the delisting of the latter. The tender offer process should end by 3Q19. Despite the bright outlook, we have removed Golden Land from our Top Pick until all matters are resolved.

BTS Group (BTS TB, BUY, TP: THB10.4), which has a 50;50 JV with Sansiri since 2015 to develop condominiums along mass transit stations, acquired almost 10% stake in listed developer, Noble Development (NOBLE TB, NR) in Apr 2019. We note that the accumulated value of JV condominiums between BTS and Sansiri is THB60-65bn over the past five years – still below the original target of THB100bn announced in 2015. We await BTS’ direction regarding the development of condominiums with Sansiri. For now, it also has a modest stake in Noble, which is also a leading condominium developer along mass transit stations.

Thailand Company Update



AP Thailand (AP TB) Buy (Maintained)

Best Performer Of 1H19; Maintain BUY Target Price (Return) THB9.30 (+14%) (+18%) Price: THB8.15

Market Cap: USD827m

Avg Daily Turnover (THB/USD) 81m/2.5m Maintain BUY, new THB9.30 TP from THB8.30, 16% upside plus c.5%

yield. We remain upbeat on AP Thailand, the sector’s best performer by

1H19 presales growth. Growth momentum should continue, as the value of

new launches should peak in 3Q. AP is likely to be the only listed developer

we cover that is able to meet its FY19 guidance. Valuations remain

compelling at -1SD from its mean. Our new TP is pegged at 8x 2019F P/E.

Best performer by presales growth in 1H19. Total presales increased 20%

YoY, with condominium and housing presales up 30% and 14% YoY. Also,

1H presales of THB21bn accounted for 53% of its full-year target. We note

that AP is the only developer under our coverage with modest presales

growth in 1H19, vs -32% YoY of the combined residential sector’s presales.

New launches to peak in 3Q19. Since the value of new launches in 1H

represented 38% of its THB58bn full-year target, more new projects should

come in 2H. AP is looking to launch two big condominium projects – the

THB8.8bn Life Sathorn Sierra and THB6.3bn Thapra – in 3Q. These projects,

coupled with THB10bn in new landed property projects, imply that the

combined value of new launches should be at THB25bn in 3Q, comprising

43% of its full-year forecast.

Backlog of THB57bn in projects as at mid-FY19. Of the total, around

THB18bn (landed property: THB10bn, condominiums: THB8bn) is set to be

recognised as revenue this year. More backlog worth THB13.7bn and

THB17.3bn are due to be realised as revenue in 2020 and 2021 respectively.

Earnings likely to dip in 2019 before rebounding in 2020-2021. AP

estimates residential sales to stay flat YoY at THB26bn, of which 78% is

already in hand as backlog. That said, we project 2019 earnings to dip by 5%

YoY, given the higher portion of low-margin landed property projects. For

FY20-21, we estimate earnings to grow modestly, as more backlog will be

realised as revenue upon the completion of new condominium developments.

Risks: weak macroeconomic outlook and tightening LTV rules. Specific risks

for the company are its dependency on foreign buyers, and an unexciting

earnings outlook in 2019. The portion of 2018 presales to foreigners is a

modest 20% of condominiums presales, or 10% of total presales.

Analyst

Wanida Geisler

+66 2088 9748 [email protected]

Share performance (%)

YTD 1m 3m 6m 12m

Absolute 32.50 1.27 (1.85) 17.78 (9.14)

Relative 22.23 (1.15) (4.80) 8.90 (14.56)

52-wk Price low/high (THB) 5.80 – 9.60

Source: Bloomberg

Forecasts and Valuation Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F

Total turnover (THBm) 22,175 27,701 28,202 27,391 30,290 Reported net profit (THBm) 3,157 3,865 3,657 4,001 4,551

Recurring net profit (THBm) 3,071 3,860 3,657 4,001 4,551

Recurring net profit growth (%)

18.3 25.7 (5.3) 9.4 13.7

Recurring EPS (THB) 0.98 1.23 1.16 1.27 1.45

Recurring P/E (x) 8.3 6.6 7.0 6.4 5.6

P/BV (x) 1.2 1.1 1.0 0.9 0.8

DPS (THB) 0.4 0.4 0.4 0.5 0.5

Dividend Yield (%) 4.3 4.9 5.1 5.6 6.4

ROAE (%) 15.0 16.8 14.3 14.2 14.7

Net debt to equity (%) 80.2 79.3 53.6 44.6 34.7

Interest coverage (x) 23.0 29.5 28.6 22.4 26.9

Source: Company data, RHB

mailto:[email protected]

AP Thailand Thailand Company Update



Financial Exhibits

Asia Financial summary Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F

Thailand Recurring EPS (THB) 0.98 1.23 1.16 1.27 1.45

Property DPS (THB) 0.35 0.40 0.42 0.46 0.52

AP (Thailand) BVPS (THB) 6.88 7.75 8.51 9.37 10.35

Bloomberg AP TB ROE (%) 14.96 16.78 14.29 14.23 14.67

Buy Valuation basis Valuation metrics Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F

P/E Recurring P/E (x) 8.35 6.64 7.01 6.41 5.63

P/B (x) 1.19 1.05 0.96 0.87 0.79

FCF Yield (%) (10.69) (3.34) 24.32 9.87 12.78

Key drivers Dividend yield (%) 4.31 4.90 5.13 5.62 6.39

i. Economic growth; EV/EBITDA (x) 12.28 12.06 9.53 9.43 8.31

ii. Consumer confidence; EV/EBIT (x) 12.16 12.10 9.46 9.36 8.25

iii. Foreign buyers Income statement (THBm) Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F

Key risks Total turnover 22,175 27,701 28,202 27,391 30,290

i. Banks' strict lending measures; Gross profit 7,913 9,362 9,759 9,505 10,415

ii. High household debt; EBITDA (adj.) 3,415 3,637 4,106 4,019 4,340

iii. Fierce competition. Depreciation & amortisation (54) (70) (30) (33) (37)

Operating profit 3,361 3,567 4,076 3,986 4,303

Net interest (150) (123) (145) (181) (163)

Company Profile Pre-tax profit 3,299 3,503 3,993 3,870 4,209

AP Thailand is a residential developer Taxation (739) (778) (799) (774) (842)

specialising in landed property and Net profit 3,157 3,865 3,657 4,001 4,551

condominiums in Bangkok. Recurring net profit 3,071 3,860 3,657 4,001 4,551

Cash flow (THBm) Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F

Change in working capital (4,504) (5,035) 3,554 (69) 408

Cash flow from operations (1,735) (2,147) 6,791 3,090 3,842

Capex (239) (239) (56) (60) (65)

Cash flow from investing activities (1,006) 1,290 (556) (560) (565)

Dividends paid (944) (1,109) (1,256) (1,316) (1,440)

Cash flow from financing activities 2,708 754 (3,041) (3,816) (2,440)

Cash at beginning of period 1,087 1,054 951 4,145 2,859

Net change in cash (33) (103) 3,194 (1,286) 837

Ending balance cash 1,054 951 4,145 2,859 3,695

Balance sheet (THBm) Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F

Total cash and equivalents 1,054 951 4,145 2,859 3,696

Tangible fixed assets 265 408 408 408 408

Total investments Total assets 43,936 49,284 50,157 50,636 53,060

Short-term debt 8,962 7,035 5,850 5,850 5,850

Total long-term debt 9,440 13,240 12,640 10,140 9,140

Total liabilities 22,303 24,904 23,377 21,172 20,486

Total equity 21,633 24,380 26,780 29,464 32,575

Total liabilities & equity 43,936 49,284 50,157 50,636 53,060

Key metrics Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F

Revenue growth (%) 9.5 24.9 1.8 (2.9) 10.6

Recurrent EPS growth (%) 18.3 25.7 (5.3) 9.4 13.7

Gross margin (%) 35.7 33.8 34.6 34.7 34.4

Operating EBITDA margin (%) 15.4 13.1 14.6 14.7 14.3

Net profit margin (%) 14.9 12.6 14.2 14.1 13.9

Capex/sales (%) 1.1 0.9 0.2 0.2 0.2

Interest cover (x) 22.4 29.0 28.2 22.0 26.5


AP Thailand Thailand Company Update



Figure 1: AP Thailand’s quarterly presales Figure 2: AP Thailand’s annual presales

Source: Company data, RHB Source: Company data

Figure 3: Value of new launches Figure 4: AP Thailand’s P/E and SD levels

Source: Company data Source: Company data, RHB

Figure 5: AP’s performance vs 2019 guidance

THBm 2019F Guidance % YoY 1H19 % YoY Remarks

Presales-condominium 16,500 -24% 9,507 +30% 57% of full-year guidance

Presales-landed property 22,500 +14% 11,287 +14% 50% of full-year guidance

Total 39,000 +6% 20,794 +20% 53% of full-year guidance

New launches-condo 22,400 +14% 7,300 +46% 2 projects worth THB15bn in 3Q New launches-landed property 35,650 +27% 14,685 +173% THB21bn of new launches in 2H

Total 58,050 +28% 21,985 +112% 38% of full-year target

Source: Company data




Land and Houses (LH TB) Buy (Maintained)

Big Rebound In 2Q19 Presales; Keep BUY Target Price (Return) THB12.00 (+8%) (+11018%) Price: THB11.10

Market Cap: USD4,345m Avg Daily Turnover (THB/USD) 454m/14.7m

Keep BUY and SOP-based TP of THB12.00, 8% upside plus c.6% yield.

Strong recovery in 2Q19 presales helped to drive 1H19 numbers. While the company remains confident that landed property presales target can be met, the weak condominium market may put pressure on overall guidance. Rental business and profit contribution from its associates continue to support bottomline. A further upside should come from the potential divestment gains from the sale of assets at end-2019.

2Q19 presales rebounded meaningfully QoQ. We estimate 2Q19 presales

to grow at a low teens rate YoY, and almost 40% QoQ from the successful launch of Mantana Bangna housing estate, and also a big promotional campaign to sell ready-to-move-in condominiums worth THB1bn (Figure 1).

1H19 presales dipped 5% YoY to THB13bn, which accounted for 40% of its

full year presales target. New launches for 1H19 are on track at THB16bn. The company still reaffirms its full-year new launches target of THB30bn.

Unlikely to meet full-year presales target due to weak condominium

business. Of total 1H19 presales of THB13bn, c.THB12bn were from landed property (45% of full year target), and THB1.3bn from condominiums (20% of full year target) (Figure 5). Given more new housing projects to be launched in 2H19, its landed property presales target is likely to be met. Condominium presales have been soft, hence, full-year target is likely to be missed.

2Q19 earnings outlook. Following the lack of divestment gains in 2Q18, its

2Q19 bottomline should slip modestly YoY. Compared to a low base in 1Q19, we estimate earnings to grow 15-20% QoQ. Rental income should continue to be strong YoY from the full-year operations of Terminal 21 Shopping Center, and Grand Center Point Pattaya hotel.

Plan for asset divestment is still on. At end-2019, the company plans to

divest Grande Centre Point Sukhumvit 55 hotel. Assuming a potential return of 50%, this should generate gains of c.THB2bn. Also, we expect Land and Houses to divest one apartment project in the US in 2020, and another in 2021. We have yet to factor those gains into our estimates.

Risks include weak macroeconomic outlook, and tightening loan-to-

value ratio (LTV) rules.

Analyst

Wanida Geisler



YTD 1m 3m 6m 12m

Absolute 14.14 2.73 2.73 11.88 (0.88)

Relative 3.87 0.30 (0.22) 3.00 (6.29)


Source: Bloomberg




Recurring net profit growth (%) 10.3 13.9 (3.8) 10.8 5.9


Recurring P/E (x) 16.2 14.2 14.8 13.3 12.6

P/BV (x) 2.6 2.7 2.6 2.5 2.5

DPS (THB) 0.75 0.75 0.68 0.71 0.75

Dividend Yield (%) 6.8 6.7 6.1 6.4 6.8

ROAE (%) 21.6 20.9 17.9 19.4 19.9





Land and Houses Thailand Company Update



Financial Exhibits



Property DPS (THB) 0.75 0.75 0.68 0.71 0.75

Land and Houses BVPS (THB) 4.19 4.18 4.22 4.36 4.52

Bloomberg LH TB ROE (%) 21.57 20.94 17.89 19.40 19.87

Buy Valuation basis Valuation metrics Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F

SOP Recurring P/E (x) 16.19 14.21 14.76 13.32 12.58

P/B (x) 2.65 2.65 2.63 2.54 2.46

FCF Yield (%) 3.83 5.24 4.88 5.04 4.61




iii. A quality investment portfolio. Income statement (THBm) Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F






Net interest (641) (731) (627) (567) (567)


Land and Houses is one of the top most well- Taxation (1,890) (1,708) (1,318) (1,468) (1,513)

known and long established developers. Net profit 10,463 10,475 8,984 9,955 10,544

Also, it has rental assets, huge investment Recurring net profit 8,195 9,335 8,984 9,955 10,544

portfolio and a sizeable landbank. Cash flow (THBm) Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F

Change in working capital 86 (417) 1,205 911 213

Cash flow from operations 5,372 6,135 7,160 7,533 7,089

Capex (2,569) 265 (1,773) (1,896) (2,028)

Cash flow from investing activities (360) 3,686 1,385 1,625 1,893

Dividends paid (8,326) (8,961) (8,495) (8,273) (8,712)

Cash flow from financing activities (2,739) (7,271) (10,769) (12,855) (8,712)

Cash at beginning of period 3,011 5,283 7,832 5,609 1,912

Net change in cash 2,272 2,549 (2,224) (3,696) 270

Ending balance cash 5,283 7,832 5,609 1,912 2,182


Total cash and equivalents 5,283 7,832 5,609 1,912 2,182

Tangible fixed assets 21,632 21,922 23,019 24,169 25,378

Total investments 29,734 29,280 29,866 30,463 31,073

Total assets 109,492 111,481 110,080 107,580 109,828

Short-term debt 16,139 14,883 12,609 12,609 12,609



Total equity 50,809 50,752 51,279 53,001 54,875



Revenue growth (%) 16.8 (1.9) (5.4) 4.4 2.5


Gross margin (%) 34.4 35.1 32.7 33.5 33.5



Capex/sales (%) 7.4 (0.8) 5.5 5.6 5.9

Interest cover (x) 12.1 10.5 10.2 12.2 12.5


Land and Houses Thailand Company Update



Figure 1: Land and Houses’ quarterly presales Figure 2: Land and Houses’ annual presales

Source: Company data Source: Company data

Figure 3: Presales vs new launches Figure 4: Land and Houses’ P/E and SD

Source: Company data Source: Setsmart, RHB

Figure 5: Land and Houses’ performance vs 2019 guidance

THB bn 2019F Guidance % YoY 1H19F % YoY Remarks

Presales-condominium 6.6 +11% 1.3 -11% 20% of full year guidance Presales-landed property 26.4 +34% 11.9 -5% 45% of full year guidance

Total 33.0 +6% 13.2 -5% 40% of full year guidance





Ananda Development (ANAN TB) Trading Buy (Maintained)

Needs To Re-visit Its Guidance Target Price (Return) THB4.54 (+20%) (+18%) Price: THB3.78

Market Cap: USD400m Avg Daily Turnover (THB/USD) 42m/1.4m

Keep TRADING BUY, THB4.54 TP from THB4.7, 20% upside plus 7%

FY19F yield. As Ananda’s 1H19 presales accounted for only 30% of its full-

year forecast, it is looking at adjusting its FY19 guidance. We tweak FY19F

earnings to reflect the weak YTD sales, and potential delays in

transfers/revenue recognition. Its P/E and P/BV are at historic lows (-2SD

below long-term mean), while yields are at c.6% pa. Our new TP implies 7x

2019F P/E – below peer average.

2Q19 presales picked up QoQ but 1H numbers remained soft. 2Q

presales grew 27% QoQ to THB6.1bn on the launch of its new condominium

project, Ideo Q Phahol. The first phase is 39%-sold (11% of total project

value). We note that presales in 1H were at THB11bn (-37% YoY),

accounting for just 30% of its full-year forecast of THB36bn.

3Q should be 2019’s peak quarter in terms of new launches. 1H new

launches (including two condominium projects) were worth THB13bn.

According to its original guidance, Ananda should launch four condominium

projects worth THB16bn in 3Q, and another two more valued at THB8bn in

4Q. We note that its landbank in hand is for the mid-to-upper income

segment, with unit prices >THB150,000/sqm. These are located in the inner

city, close to mass transit stations.

Another challenging year. Ananda missed its 2018 guidance by 10%. Given

the weak 1H19 numbers, we believe it may not be able to achieve this year’s

aggressive targets (Figure 4). Many Thai developers including Ananda are

now reviewing their original FY19 guidance.

Update on recurring income business. Five apartment projects, built in a

JV with Mitsui Fudosan, are under construction. The first two, Somerset

Rama 9 (66%-completed at end-1Q19), and LYF Sukhumvit 8 (21%-

completed in end-1Q19) will be commercialised in 1H20. Another two, Ascott

Embassy Sathorn and Ascott Thonglor Bangkok, will begin construction in

1H21. Finally, Somerset Pattaya Chonburi is targeted to be completed by

2022. Total investment value is set at an average of THB1.1bn pa between

2017 and 2022. The combined revenue from this business is forecasted to

gradually increase to THB1.8bn pa in 2022 (Figure 3).

Risks include a weak macroeconomic outlook, modest exposure (30%) to

foreign buyers and tightening loan-to-value (LTV) rules. Specific risks: it is

highly dependent on the condominium segment, its weak landed property

business, and huge investments needed to build up rental assets.

Analyst

Wanida Geisler



YTD 1m 3m 6m 12m

Absolute 16.67 2.16 (7.80) 18.87 (22.54)

Relative 6.40 (0.26) (10.76) 9.99 (27.96)


Source: Bloomberg





(15.2) 90.0 3.1 2.6 5.5


Recurring P/E (x) 11.5 5.9 5.8 5.7 5.3

P/BV (x) 0.9 0.7 0.6 0.6 0.5

DPS (THB) 0.13 0.25 0.26 0.27 0.28

Dividend Yield (%) 3.4 6.7 6.9 7.1 7.5

ROAE (%) 11.0 15.2 13.2 12.3 11.9





Ananda Development Thailand Company Update



Financial Exhibits



Property DPS (THB) 0.13 0.25 0.26 0.27 0.28

Ananda Development BVPS (THB) 4.04 5.40 5.95 6.51 7.11

Bloomberg ANAN TB ROE (%) 10.97 15.24 13.19 12.32 11.89

Trading Buy Valuation basis Valuation metrics Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F

P/E Recurring P/E (x) 11.53 5.91 5.83 5.66 5.32

P/B (x) 0.94 0.70 0.64 0.58 0.53

FCF Yield (%) (18.39) (33.83) (19.24) (17.04) (4.47)




iii. Foreign buyers; iv. Investment alternatives Income statement (THBm) Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F



ii. High household debt; EBITDA (adj.) 2,384 802 698 1,259 1,835


Operating profit 1,780 71 7 533 1,070

Net interest (285) (368) (590) (635) (675)

Company Profile Pre-tax profit 1,972 291 35 546 1,075

Ananda specialises in building condominiums Taxation (373) (95) (7) (109) (215)

along Bangkok's mass transit routes. It is Net profit 1,328 2,419 2,494 2,559 2,700

developing several serviced apartments for Recurring net profit 1,328 2,397 2,494 2,559 2,700

rental purposes. Cash flow (THBm) Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F

Change in working capital (3,663) (3,740) (1,892) (2,545) (1,382)

Cash flow from operations (2,901) (2,738) (1,179) (1,540) 58

Capex (2,981) (3,050) (2,245) (1,106) (1,122)

Cash flow from investing activities

584 (1,524) (1,245) (606) (622)

Dividends paid (483) (608) (856) (878) (919)

Cash flow from financing activities

1,697 7,113 84 290 77

Cash at beginning of period 2,683 2,063 4,914 2,573 716

Net change in cash (620) 2,851 (2,341) (1,857) (487)

Ending balance cash 2,063 4,914 2,573 716 229


Total cash and equivalents 2,063 4,914 2,573 716 229



Total assets 29,904 41,573 44,968 48,692 52,514

Short-term debt 1,499 5,672 5,672 5,672 6,000



Total equity 13,460 17,989 19,822 21,714 23,713



Revenue growth (%) 5.7 (19.9) 12.9 (3.4) 20.8

Recurrent EPS growth (%) (15.2) 90.0 3.1 2.6 5.5

Gross margin (%) 35.1 30.0 30.0 31.4 32.3



Capex/sales (%) 24.0 30.7 20.0 10.2 8.6

Interest cover (x) 6.2 0.2 0.0 0.8 1.6


Ananda Development Thailand Company Update



Figure 1: Ananda’s quarterly presales Figure 2: Ananda’s P/E and SD levels


Figure 3: Ananda’s serviced apartment projects are located along mass transit routes in Bangkok

Source: Company

Figure 4: Ananda’s historical record and 2019 guidance





Quality Houses (QH TB) Neutral (Maintained)

Waiting For Core Business To Turn Target Price (Return) THB3.15 (+4%) (+1102.2%) Price: THB3.02


Still NEUTRAL and SOP-based THB3.15 TP, 4% upside plus 7% yield.

While Quality Houses’ topline remains on the downtrend, it has been able to grow core earnings over the past two years due to effective cost-saving programmes. The company’s residential business may be sluggish, but its share price is supported by a valuable investment portfolio worth THB55bn – 40% above the current THB32bn market cap – and healthy yields. A turnaround of its core business has yet to come too.

2Q19 performance – a historic low. Presales in 2Q may come in

c.THB1.5bn – a YoY and QoQ collapse. Consequently, 1H’s performance should be disappointing, with

Quality Houses Thailand Company Update



Financial Exhibits Asia Financial summary Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F


Property DPS (THB) 0.20 0.22 0.22 0.22 0.22

Quality Houses BVPS (THB) 2.31 2.45 2.59 2.73 2.88

Bloomberg QH TB ROE (%) 13.24 16.27 14.07 13.69 13.26

Neutral Valuation basis Valuation metrics Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F

SOP Recurring P/E (x) 10.68 8.12 8.89 8.66 8.47

P/B (x) 1.36 1.28 1.22 1.15 1.09

FCF Yield (%) 13.41 8.19 2.17 2.91 4.79


i. Economic growth; ii. Consumer confidence; iii. Efficiency improvements.

EV/EBITDA (x) 20.14 13.05 15.74 15.83 15.80

EV/EBIT (x) 19.24 12.74 15.25 15.28 15.18

Income statement (THBm) Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F


i. Banks' strict lending measures; ii. High household debt; iii. Fierce competition.

Gross profit 5,095 5,746 5,385 5,486 5,543

EBITDA (adj.) 2,117 3,196 2,740 2,795 2,834

Depreciation & amortisation (183) (181) (187) (187) (187)


Net interest (357) (356) (356) (357) (359)


Quality Houses is a property developer and operator of serviced apartments/offices for rent.

Taxation (343) (541) (494) (508) (518)

Net profit 3,462 3,801 3,798 3,898 3,985

Recurring net profit 3,160 4,155 3,798 3,898 3,985


Change in working capital 3,589 (189) (2,682) (2,523) (1,965)

Cash flow from operations 5,262 1,906 (562) (350) 248

Capex (1,530) 700 (193) (197) (201)

Cash flow from investing activities (737) 859 1,295 1,332 1,370

Dividends paid (1,607) (2,250) (2,357) (2,357) (2,371)


Cash at beginning of period 2,888 3,809 3,821 1,929 703

Net change in cash 921 12 (1,892) (1,226) (547)

Ending balance cash 3,809 3,821 1,929 703 156


Total cash and equivalents 3,809 3,821 1,929 703 156



Total assets 53,059 54,148 55,498 57,414 59,474

Short-term debt 8,300 10,397 9,877 9,384 8,914



Total equity 24,802 26,269 27,710 29,251 30,865



Revenue growth (%) (10.6) (6.0) (2.6) 1.9 1.2


Gross margin (%) 29.8 35.7 34.4 34.3 34.3



Capex/sales (%) 8.9 (4.4) 1.2 1.2 1.2

Interest cover (x) 5.4 8.5 7.2 7.3 7.4


Quality Houses Thailand Company Update



Figure 1: Quality Houses’ quarterly presales Figure 2: Quality Houses’ annual presales


Figure 3: Quality Houses’ value of new launches Figure 4: Quality Houses’ P/E and SD





Supalai (SPALI TB) Neutral (Maintained)

Striving To Meet Guidance Target Price (Return) THB23.50 (-2%) (+18%) Price: THB23.90


Maintain NEUTRAL with new THB23.50 TP from THB20.50, 2%

downside. Supalai’s 1H19 presales were soft, so we think it needs to put

more effort to drive the condominium business in 2H. Nonetheless, we are

sceptical that Supalai will be able to meet even its own conservative guidance

amid the current tough operating environment. More effective new property

stimulus may provide upside surprise. Our new TP is pegged at 8x P/E (from

7x or -1SD level) – the same as peers.

1H19 presales came in at THB13.3bn (-24% YoY). This was despite a pick-

up in 2Q19 presales of 12% QoQ to THB7bn. Both landed property and

condominium presales in 1H slipped 19% and 31% YoY. We also note that

its residential sales in Bangkok and condominium sales in other provinces

were down 25-29% YoY. However, presales of landed property in the

upcountry slipped 5% YoY, thanks to real demand from local people (Figure

5).

Disappointing condominium presales. Between landed properties and

condominiums, the landed property business seems to have progressed in

line with expectations, with presales accounting for over 40% of its full-year

target.However, as a result of soft condominium presales at its newly

launched project – the THB13bn Supalai Icon Sathorn (20% sold) – we think

Supalai has to put more effort in 2H to drive the take-up rate of three new

condominium projects

Challenging 2019 presales target. 1H19 presales accounted for 38% of its

full year target worth THB35bn, +5% YoY. This is despite new launches of

THB19bn (49% of full year target). In 2H, it plans to launch another THB21bn

worth of new projects including three condominiums. Supalai still keeps its

capex forecast of THB18bn (+23% YoY), despite weak market sentiment.

Given the tough operating environment, we are sceptical that it will be able

meet its conservative presales guidance (Figures 2-3).

Conservative revenue/earnings forecasts. For the full year, Supalai targets

revenue at THB28bn, +7% YoY, of which around 50% is secured mainly by

backlog from four condominiums worth a total of THB10bn (average 90%

sold). We estimate 2019F earnings to grow 9% YoY. Dividend yield should

remain handsome at around 5% p.a. for 2019F-2021F. 2Q19 and 1H19

earnings should be soft, in line with weak presales.

Risks include a weak macroeconomic outlook and tighter loan-to-value (LTV)

rules. Should the Government release more effective new property stimulus,

Supalai, which targets the mass market, should see some upside surprise.

Analyst

Wanida Geisler



YTD 1m 3m 6m 12m

Absolute 29.12 4.44 10.33 27.03 0.43

Relative 18.85 2.02 7.38 18.14 (4.99)


Source: Bloomberg





11.6 5.8 8.8 3.7 4.9


Recurring P/E (x) 7.1 8.9 8.2 7.9 7.5

P/BV (x) 1.5 1.5 1.4 1.2 1.1

DPS (THB) 0.00 1.00 1.19 1.22 1.27

Dividend Yield (%) 0.0 4.2 5.0 5.1 5.3

ROAE (%) 23.0 18.7 17.5 16.4 15.6





Supalai Thailand Company Update



Financial Exhibits



Property DPS (THB) - 1.00 1.19 1.22 1.27

Supalai BVPS (THB) 16.14 15.86 17.60 19.45 21.39

Bloomberg SPALI TB ROE (%) 22.95 18.70 17.51 16.40 15.61

Neutral Valuation basis Valuation metrics Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F

P/E Recurring P/E (x) 7.06 8.88 8.16 7.87 7.50

P/B (x) 1.48 1.51 1.36 1.23 1.12

FCF Yield (%) 4.38 9.42 5.34 3.06 3.70

Key drivers Dividend yield (%) - 4.19 4.99 5.08 5.33



iii. Reasonable backlog. Income statement (THBm) Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F






Net interest (348) (268) (307) (326) (336)


Supalai is a residential developer focused on Taxation (1,488) (1,449) (1,499) (1,552) (1,627)

the mid to low end products in Bangkok and Net profit 5,814 5,770 6,278 6,510 6,830 upcountry. Recurring net profit 5,364 5,770 6,278 6,510 6,830



Cash flow from operations 2,075 4,353 2,901 1,744 2,081

Capex 982 (158) (166) (174) (184)

Cash flow from investing activities (278) 473 (166) (174) (184)

Dividends paid (944) (838) (2,537) (2,558) (2,668)


Cash at beginning of period 570 514 1,056 2,528 1,728

Net change in cash (56) 542 1,473 (801) (623)

Ending balance cash 514 1,056 2,528 1,728 1,105


Total cash and equivalents 514 1,056 2,528 1,728 1,105



Total assets 55,746 57,704 63,525 68,334 73,375

Short-term debt 10,136 6,495 6,777 6,897 7,024



Total equity 28,411 34,722 38,477 42,447 46,630



Revenue growth (%) 6.3 3.0 14.1 5.3 5.3

Recurrent EPS growth (%) 11.6 5.8 8.8 3.7 4.9

Gross margin (%) 37.5 38.4 38.2 37.8 37.8



Capex/sales (%) (4.0) 0.6 0.6 0.6 0.6

Interest cover (x) 19.1 26.1 24.5 24.0 24.3


Supalai Thailand Company Update



Figure 1: Supalai’s quarterly presales Figure 2: Supalai’s annual presales


Figure 3: Value of new launches Figure 4: Supalai’s P/E and SD

Source: Company data Source: Company data, RHB

Figure 5: Supalai’s 1H19 presales breakdown by locations

Source: Company




Sansiri (SIRI TB) Sell (Maintained)

The Going Gets Tough Target Price (Return) THB1.20 (-20%) (+185051.10%) Price: THB1.50


Maintain SELL with new THB1.20 TP from THB1.15, 20% downside. After

disappointing 1H performance, Sansiri is reviewing this year’s plan, which is already conservative. We also are not upbeat on its 2019F-2020F earnings given lower margins, extra expenses, and small backlog to be realised as residential sales. Current P/E of 10x is +1SD from its mean. Our new TP is pegged at 8x 2019F P/E.

1H19 presales collapsed 53% YoY to THB11.4bn (32% of full year target).

We note that 2Q presales of THB4.8bn (-73% YoY and -27% QoQ), were the lowest quarterly presales since 2016. Of total first half presales, landed property and condominiums stood at THB6.8bn (-36% YoY) and THB4.6bn (-53% YoY) (Figure 4).

New launches worth THB14bn in 1H. New projects comprised six landed

properties and two condominiums. Based on its original guidance, Sansiri will launch another 20 projects worth THB32.6bn in the second half (Figure 6).

Potential revision of 2019 guidance. Sansiri’s 2019 original guidance

(THB36bn presales: -26% YoY; THB46.6bn new launches: -30% YoY) was one of the most conservative among listed developers (Figures 1-2). We note that 1H presales of landed property and condominiums accounted for 47% and 22% of its full year target, respectively. Given the weaker-than-expected 1H performance, Sansiri is reviewing its full-year guidance.

Expect a decline in foreign buyers. Over the past three years, Sansiri’s

condominium business had been driven by foreign buyers (Figure 5). The portion of foreign buyers in 2018 was 47% (up from 17% in 2014) of total condominium presales, but this year, Sansiri expects the portion to decline to 40% or lower.

Backlog stood at THB57bn. Of the total, THB9-10bn pa should be realised

as revenue in 2019F and 2020F. This presents 40-45% of 2019F-2020F residential sales (Figure 3).

Margins under pressure. Gross margin is likely to soften, given a larger

portion of lower margin landed property sales. Sansiri still expects its net margin to stay at 9-10%, below the industry average of 12%. Extra expense this year will be the relocation of its headquarters – which is scheduled to take place by end-2019, and non-cash provision worth around THB90m for retirement of employees, who have worked for more than 20 years.

Upside risks include a better-than-expected macroeconomic outlook, slower-

than-expected interest rate hikes, a milder-than-expected impact from upcoming loan-to-value (LTV) rules, and the return of foreign buyers.

Analyst

Wanida Geisler



YTD 1m 3m 6m 12m

Absolute 24.58 4.26 7.30 18.55 (8.13)

Relative 14.31 1.83 4.35 9.67 (13.54)


Source: Bloomberg





(11.6) (27.4) 5.8 5.8 12.2


Recurring P/E (x) 7.5 10.8 10.2 9.6 8.6

P/BV (x) 0.7 0.7 0.7 0.7 0.7

DPS (THB) 0.12 0.12 0.10 0.10 0.11

Dividend Yield (%) 7.8 7.8 6.4 6.2 7.0

ROAE (%) 9.6 6.6 7.2 7.4 8.0





Sansiri Thailand Company Update



Financial Exhibits



Property DPS (THB) 0.12 0.12 0.10 0.10 0.11

Sansiri PCL BVPS (THB) 2.08 2.08 2.12 2.18 2.26

Bloomberg SIRI TB ROE (%) 9.57 6.62 7.17 7.40 8.04

Sell Valuation basis Valuation metrics Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F

P/E Recurring P/E (x) 7.52 10.77 10.18 9.63 8.58

P/B (x) 0.73 0.74 0.72 0.70 0.68

FCF Yield (%) (29.01) (46.58) 5.18 (11.13) (0.55)




iii. Investment alternative; iv. Foreign buyers. Income statement (THBm) Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F

Total turnover 30,915 26,247 28,389 30,648 34,897

Gross profit 9,583 7,668 8,048 8,667 9,930

Key risks EBITDA (adj.) 3,678 2,334 2,425 2,544 2,878

i. Banks' strict lending measures; Depreciation & amortisation (255) (310) (339) (390) (450)

ii. High household debt; Operating profit 3,480 2,113 2,086 2,154 2,428

iii. Fierce competition. Net interest (410) (569) (772) (825) (832)

Pre-tax profit 3,658 2,336 2,121 2,153 2,436

Taxation (819) (533) (467) (474) (536)

Company Profile Net profit 2,825 2,046 2,233 2,362 2,651

Sansiri is one of Thailand's top residential Recurring net profit 2,908 2,111 2,233 2,362 2,651

developers with a well-diversified product portfolio – this includes single detached Cash flow (THBm) Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F

houses, townhouses and condominiums that Change in working capital (678) (12,927) (589) (4,598) (2,417)

target every market except the low-end Cash flow from operations 2,968 (11,094) 1,183 (2,528) (67)

segment. Capex (151) (497) (584) (687) (809)

Cash flow from investing activities (9,565) 502 (5) (4) (58)

Dividends paid (1,857) (1,633) (1,618) (1,434) (1,504)

Cash flow from financing activities 6,033 11,549 (2,027) 2,066 (1,004)

Cash at beginning of period 3,541 2,977 3,934 3,085 2,619

Net change in cash (564) 957 (849) (466) (1,129)





Total investments - - - - -

Total assets 80,341 95,357 95,994 100,920 103,504

Short-term debt 21,539 18,634 17,497 17,497 17,497



Total equity 30,919 30,853 31,465 32,393 33,539



Revenue growth (%) (8.6) (15.1) 8.2 8.0 13.9

Recurrent EPS growth (%) (11.6) (27.4) 5.8 5.8 12.2

Gross margin (%) 31.0 29.2 28.3 28.3 28.5



Capex/sales (%) 0.5 1.9 2.1 2.2 2.3

Interest cover (x) 8.5 3.7 2.7 2.6 2.9


Sansiri Thailand Company Update



Figure 1: Sansiri’s presales breakdown Figure 2: Sansiri’s P/E and SD


Figure 3: Sansiri’s backlog Figure 4: Sansiri’s quarterly presales


Figure 5: Sansiri’s condominium presales Figure 6: Sansiri’s new launches





LPN Development (LPN TB) Sell (Maintained)

Still In Dire Straits; Maintain SELL Target Price (Return) THB6.60 (-11%) (+18%) Price: THB7.40


Maintain SELL with new THB6.6 TP from THB6, 11% downside. We expect

1H19 performance to be sluggish. YTD presales and new launches represent 20% and 9% of its full-year target. With fewer new launches, its future earnings are at risk given the small backlog. Despite its sluggish outlook, our new TP is pegged at 8x 2019F P/E (similar to peers) as it is one of the stocks that is under the sustainability (SETHSI) and ESG100 lists.

Weak 1H19 presales. 2Q19 total presales rebounded 10% QoQ to

THB1.84bn mainly from condominium presales. 1H19 presales of THB3.5bn represented only 20% of its THB16.5bn full-year presales forecast.

Two small new projects were launched in 1H19 ie THB700m Lumpini Ville

Sukhumvit101/1 (15% sold), and THB1bn Lumpini Tower Vibhavadi (10% sold). The combined value of THB1.7bn accounted for only 9% of its THB20bn full-year new launches target.

Backlog waiting for revenue recognition stands at c.THB7.6bn. Of which

60% will be booked as revenue this year. We estimate 2019F residential sales at THB9bn, modestly lower than LPN Development’s target of THB12bn (Figure 3).

Future earnings are at risk. Since its YTD performance is below

expectations, LPN is likely to cut its target for both presales and new launches. Still, new launches in 2H should still be higher than 1H. In case LPN comes out with very few new projects this year, future earnings should be impacted because it has only THB2bn of backlog which can be realised as sales next year. It therefore needs to continue pushing inventory worth almost THB16bn to drive future revenue.

Should the Government launch new property stimulus in the medium

term to help buyers of residential units priced 90% of its projects are targeted at the mass market, with the average price of

LPN Development Thailand Company Update



Financial Exhibits



Property DPS (THB) 0.50 0.60 0.47 0.50 0.51

LPN Development BVPS (THB) 8.40 8.75 8.96 9.37 9.76

Bloomberg LPN TB ROE (%) 8.57 10.81 9.41 9.57 9.33


P/E Recurring P/E (x) 10.28 7.98 8.88 8.44 8.29

P/B (x) 0.88 0.85 0.83 0.79 0.76

FCF Yield (%) (7.95) 15.09 (2.10) (17.57) (8.79)


i. Better revenue intensity; EV/EBITDA (x) 11.96 8.90 10.94 11.97 12.80


iii. Penetration into the mid to high end segment.





iii. Fierce competition. Depreciation & amortisation (72) (39) (39) (39) -


Net interest (3) (3) (18) (25) (27)


LPN Development specialises in low-end Taxation (300) (370) (307) (323) (329)

condominiums in Bangkok. Lately it had Net profit 1,062 1,367 1,229 1,294 1,316

entered the mid to high end segment and also Recurring net profit 1,059 1,373 1,229 1,294 1,316

developed various new products such as landed property and mixed use projects. Cash flow (THBm) Dec-17 Dec-18 Dec-19F Dec-20F Dec-21F

Change in working capital (1,795) 702 (847) (2,863) (1,926)

Cash flow from operations (701) 2,036 323 (1,626) (670)

Capex (508) (449) (546) (325) (325)


(167) (389) (552) (292) (290)

Dividends paid (1,106) (811) (889) (700) (737)


712 (1,690) 926 2,250 (37)

Cash at beginning of period 621 465 422 1,120 1,451

Net change in cash (156) (43) 698 332 (997)

Ending balance cash 465 422 1,120 1,451 455


Total cash and equivalents 465 422 1,120 1,451 455



Total assets 21,007 21,250 23,766 27,560 29,115

Short-term debt 4,469 3,246 4,500 4,500 4,700



Total equity 12,385 12,901 13,222 13,815 14,393



Revenue growth (%) (34.2) 17.0 (8.4) 9.1 0.8

Recurrent EPS growth (%) (51.2) 28.7 (10.1) 5.3 1.7

Gross margin (%) 28.9 30.9 30.4 30.4 30.4



Capex/sales (%) 5.3 4.0 5.3 2.9 2.9

Interest cover (x) 440.0 565.3 85.2 63.5 60.3


LPN Development Thailand Company Update



Figure 1: LPN’s quarterly presales Figure 2: LPN’s annual presales and new launches


Figure 3: LPN’s sales secured by backlog Figure 4: LPN’s P/E and SD levels

Source: Company data, RHB Source: Setsmart

Figure 5: LPN’s performance vs 2019 guidance

THBm 2019F Guidance % YoY 1H19 % YoY Remarks

Presales-condominium 11,500 1% 2,355 -67% 20% of 2019F

Presales-landed property 5,000 20% 1,159 -18% 23% of 2019F

Total 16,500 6% 3,514 -59% 21% of 2019F

New launches-condominium 12,000 45% 1,700 -72%

2019F new launches include two office condo for sale

New launches-landed property 8,000 97% na na Including two new premium housing projects

Total 20,000 62% 1,700 -76%





Pruksa Holding (PSH TB) Sell (Maintained)

Fully Valued; Still SELL Target Price (Return) THB19.25 (-14%) (+22318%) Price: THB22.50


Still SELL with new THB19.25 TP from THB16.80, 14% downside and c.5% yield. 1H presales dipped slightly, and Pruksa is looking to re-schedule

its new launches – this may impact its full-year presales/revenue guidance. We estimate 2019 revenue to stay flat YoY, but earnings may slip slightly. Our new TP is pegged at a higher 8x P/E from 7x, -0.5SD from its long-term mean. This is to reflect the potential new round of property market stimuli from the Government.

1H19 presales reached THB23bn, or 43% of the full-year forecast (-4% YoY). 2Q presales grew 5% YoY (+10% QoQ) on the launch of two premium

condominiums: The THB1.5bn Chapter Chula-Samyan and THB5bn Chapter Charoennakorn. We note that Pruksa’s quarterly presales over the past three quarters stood at THB11-12bn/quarter (Figure 1).

2Q19 earnings to weaken modestly both QoQ and YoY, due to a high

base in 2Q18 and 1Q19, as well as soft landed property presales.

Plan to re-schedule new launches. Due to the weak sentiment, Pruksa is

looking to adjust this year’s new launches, which were originally set at THB68bn (+27% YoY). It may maintain the launch of eight new condominium projects worth THB30bn, but is likely to look at re-scheduling the launching of landed property developments (Figure 5).

Hard for 2019 presales and revenue to grow. Early this year, Pruksa set a

target for presales and revenue to grow 5-6% YoY, mainly from the condominium business. However, in case it decides to cut the number of new launches, presales and revenue for 2019 may slip YoY. We note that Pruksa has been trying to build up its mid- to upper-end products offerings, as its main low-end market is under pressure from upcoming stricter loan to value (LTV) rules (Figures 2-3).

Efficiency improvements. SG&A expenses have declined meaningfully

since last year, after Pruksa started to employ digital transformation initiatives for its sales, marketing, and operations. Such expenses to sales ratio dipped to 18.8% in 2018 (2017: 19.4%). We estimate this ratio to stay at this level thereafter. Other developments: An expansion into mid- to high-end segments, more projects in other provinces, and new product designs, and home innovations. The start-up of the THB4.5-5bn 250-bed Vimut Hospital, which is under construction till end-FY20, may put pressure on margins thereafter.

Upside risks to our call include a better macroeconomic outlook, new round

of property stimulus from the Government, and lesser-than-expected impact from the upcoming LTV rules. Additionally, if efforts to build a presence in the mid- to high-end segments bear fruit, this should be a plus for Pruksa.

Analyst

Wanida Geisler



YTD 1m 3m 6m 12m

Absolute 28.32 7.77 16.84 32.93 9.90

Relative 18.06 5.34 13.89 24.05 4.48


Source: Bloomberg





(7.20) 10.32 (7.32) 4.94 4.06


Recurring P/E (x) 9.0 8.2 8.8 8.4 8.1

P/BV (x) 1.3 1.2 1.1 1.0 1.0

DPS (THB) 2.1 1.1 1.0 1.1 1.1

Dividend Yield (%) 9.3% 4.9% 4.5% 4.8% 5.0%

ROAE (%) 14.9 15.2 13.1 12.7 12.2





Pruksa Holding Thailand Company Update



Financial Exhibits



Property DPS (THB) 2.09 1.10 1.02 1.07 1.11

Pruksa Holding BVPS (THB) 17.36 18.82 20.27 21.92 23.64

Bloomberg PSH TB ROE (%) 14.86 15.22 13.06 12.69 12.23


P/E Recurring P/E (x) 9.01 8.17 8.82 8.40 8.07

P/B (x) 1.30 1.20 1.11 1.03 0.95

FCF Yield (%) (1.87) 0.14 (1.91) 0.60 3.97


i. Economic growth; ii. Consumer confidence; iii. Penetration into the upper-end segment

and upcountry market.

EV/EBITDA (x) 9.44 9.19 10.19 9.91 9.52

EV/EBIT (x) 9.81 9.57 10.74 10.46 10.10



i. Banks' strict lending measures; ii. High household debt; iii. Fierce competition.

Gross profit 15,713 16,085 15,661 16,292 16,796

EBITDA (adj.) 7,643 8,152 7,673 8,079 8,436

Depreciation & amortisation (467) (497) (547) (601) (662)


Net interest (197) (139) (158) (185) (185)


Pruksa is the leading developer by presales and realised sales. It is developing 250-bed hospital, which is scheduled for completion at end 2020.

Taxation (1,583) (1,556) (1,424) (1,494) (1,554)

Net profit 5,456 6,022 5,584 5,860 6,098

Recurring net profit 5,574 6,130 5,695 5,974 6,216



Cash flow from operations 1,124 701 1,679 2,845 3,454

Capex (1,802) (696) (2,500) (2,500) (1,500)


(2,042) (633) (2,618) (2,550) (1,500)

Dividends paid (2,996) (2,779) (2,410) (2,233) (2,344)


1,435 76 2,090 (233) (2,344)

Cash at beginning of period 831 1,347 1,444 2,665 2,805

Net change in cash 517 144 1,151 62 (390)






Total assets 72,244 81,845 91,246 98,479 103,444

Short-term debt 8,800 12,000 11,600 11,600 11,600



Total equity 38,660 41,874 45,119 48,822 52,661



Revenue growth (%) (6.4) 2.2 1.1 3.3 2.4

Recurrent EPS growth (%) (7.2) 10.3 (7.3) 4.9 4.1

Gross margin (%) 35.8 35.8 34.5 34.8 35.0



Capex/sales (%) 4.1 1.6 5.5 5.3 3.1

Interest cover (x) 36.4 55.1 45.1 40.5 42.1


Pruksa Holding Thailand Company Update



Figure 1: Pruksa’s quarterly presales Figure 2: Pruksa’s annual presales

Source: Company data, RHB Source: Company data

Figure 3: 2019 guidance breakdown


Figure 4: Pruksa’s P/E and SD Figure 5: Pruksa’s new launches

Source: SETSMART, RHB Source: Company data, RHB

29

RHB Guide to Investment Ratings

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30

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