Pruksa Real Estate

Pruksa Real Estate Plc (PS)

 

Investment thesis

We prefer PS for its most resilient earnings for FY15 and that it bears the lowest risk of missing presale and revenue targets. It has proven to have strong transfers in 1H15 and many condos showed up for transfer in 2H15. Margin risk would be limited, because it neared its trough during Thailand’s 2011 floods. Valuations are inexpensive, trading at a FY15 PER of 9.2x (near its FY06-14 mean). Our BUY rating stands, with a YE15 target price of Bt30, pegged to a PER of 10x. 

Least downside risk to PS’ business plan for 2015

Of our coverage, PS has the lowest downside risk to its FY15 presale and revenue targets—Bt47bn of presales (up 20% YoY) and Bt47bn of revenue (up 10% YoY). Actual 1H15 presales were 51% of its target, which strongly outperformed the 46% sector mean (Figure 1). Revenue in 1H15 was 46% of target revenue against only 42% of the sector mean—PS ranks the highest coverage revenue contributor in 1H15 (Figure 2). 

GM is near its last trough

GM of 33.9% 1H15 and NM of 14.0% are near PS’ post-flood nadir in FY12 (price promotions after the outskirts of Bangkok flooded in 4Q11). Current margins are priced in with the additional depreciation (Bt120m per year) from the new precast factory (starts 4Q14) and high competition amid a weak economy. The new plants’ utilization rate has gradually ramped up from 20% in 4Q14 to 60% recently but it has yet to reach full usage of at least 80%. Margin pressure is factored in to our model, as we assume a 1.7% YoY NM contraction—the lowest NM since 2011.

Many condos are lined up for transfer in 3Q15-4Q15 

The end-August presales backlog has secured 98% of our FY15 revenue forecast (from 80% at the end of June). Revenue visibility for 2H15 is high on the back of the eight condos that are scheduled for transfer with total project value of Bt19bn (70% of take-up rate). In 3Q15, PS will start to transfer three condos—The Tree Interchange (Bt4.5bn of project value, 92% booked), Chapter One The Campus Lat Phrao (Bt486m, 89% booked), and The Reserve Kasemsan 3 (Bt1.9bn, 77% booked). In 4Q15, it will start to transfer five condos—Plum Phahonyothin 89 (Bt4.7bn, 63% booked), Plum Rangsit (Bt3.1bn, 56% booked), Plum Laem Chabang (Bt1.1bn, 41% booked), Condolette Midst Rama 9 (Bt1.9bn, 64% booked), and Fuse Sense Bang Khae (Bt1.8bn, 52% booked). 

Great benefit if government stimulus backs low-end segment

If a direct stimulus package is aimed at the sector, it must be at least favorable to first-time homebuyers and the low-end segment, which are PS’ target clients (PS’ selling price mean is Bt2.7m/unit). The move would boost transfers and the scope of upside to our model. We anticipate unexciting 3Q15 presales of Bt11bn, down 18% YoY and 1% QoQ, then a bounce to Bt12bn in 4Q15, a jump of 55% YoY and 9% QoQ.