Target price : Bt3.70
Recommendation : BUY
Closing Price (27 Feb 09) : Bt2.06
4Q08 profit beat forecast on better-than-expected revenue
- Thai developer AP posted profit growth of 35% YoY and 18% QoQ in 4Q08.
- In our view, net low-rise housing presales for the year to date have put AP on track to meet our 2009 low-rise housing presales forecast. To date, AP has not yet provided sales guidance for 2009. We expect 2009 low-rise housing presales to drop by 30%.
- Though our 2009 revenue forecast is 67% secured by current backlog, falling low-rise housing sales in a slowing market environment give rise to expectations that 2009 profit will fall by 25%.
- Based on low P/E valuation and attractive dividend yield, we reiterate a BUY opinion on AP with a price target of Bt3.70/share.
4Q08 profit beat forecast on better-than-expected revenue
Thai developer AP posted a better than expected 4Q08 profit as revenue came in Bt200m higher than our forecast on revenue contribution from condo sales. Fourth-quarter profit came in at Bt538m, up 35% YoY and 18% QoQ. Revenue rose 10% YoY and 17% QoQ. Margin was flat. SG&A expenses were flat QoQ but down YoY. Other income surged to Bt19m from Bt0.32m and Bt16m in 3Q08 and 4Q07 respectively. Rising revenue and falling operating expenses chiefly credited for profit rise both QoQ and YoY. The result topped our forecast by Bt75m.
YTD housing presales not bad compared to our forecast, but sales guidance not yet given as AP still cautious about market conditions
For the year to Feb 22, 2009, AP generated net housing presales of Bt720m, of which Bt572m came from low-rise housing sales and Bt148m from condo sales. Backlog cancellations dropped to 2% for the YTD from the 8% level prior to accounting policy change for backlog cancellations, but the figure neared 3% in 1Q08. Note that the percentage of backlog cancellations is backlog cancellations divided by presales + backlog at the beginning of the quarter. YTD low-rise housing presales of Bt572m represent 16% of our 2009 low-rise housing presales forecast of Bt3.6b. We believe low-rise housing sales conditions are returning to normal levels after negative psychological headwinds in 4Q08. AP has not yet given guidance for 2009 low-rise housing presales, as it remains cautious about the overall economic picture. However, AP sticks to its plan to launch seven new condo projects and four new low-rising housing developments. Low-rise housing stocks are enough to generate presales of about Bt4b-Bt5b for the year. The current momentum of low-rise housing presales has still put AP on track to meet our 2009 low-rise housing presales forecast.
Current backlog represents 67% of our 2009 revenue forecast, but falling low-rise housing sales in a slowing market environment gives rise to expectations that 2009 profit will fall by 25%
Our 2009 revenue forecast is now 67% secured by the current backlog of about Bt5.3b-Bt5.4b. We expect AP to realize revenue of about Bt2.9b from low-rise housing sales this year. We forecast 2009 low-rise housing presales to fall to Bt3.6b from Bt5.1b. We predict 2009 revenue to fall by 14%. Strong margin of 34% in 2008 reflected margin adjustment as actual costs came in below estimates. On this basis, we believe 2009 gross margin is unlikely to rise above the year-ago level due to the absence of margin adjustment. Slowing low-rise housing sales would make it impossible for AP to raise prices. We therefore forecast 2009 EPS to fall by 25% to Bt0.54. The upside risk to our forecast is low-rise housing sales, which may surprise to the upside.
Valuation & Recommendation
Presales point to signs of improving at least compared to 4Q08, but profit growth is largely dependent on low-rise housing sales, which we remain pessimistic. However, the current valuation of a mere 4x 2009 P/E suggests the low risk level compared to both upside and downside risks to our forecast. AP also announced a 2008 dividend of Bt0.25/share, carrying a yield in excess of 10%. We reiterate a BUY opinion on AP with a price target of Bt3.70/share.
By Phillip Securities (Thailand) Plc. on Mar 2, 2009
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