Residential Property
The top seven property developers did better last year with a 15% jump in presales - but aggregate profit inched up just 2% as income from the condo presales will be booked over the next several years. We estimate presales growth of 19% this year for our top seven, with demand largely in the mid to high end segment, where household debt to income is lower. However, profit will grow less as backlog is less. An extension of the government's incentive program offers little earnings upside at 3%, unlikely to bring stock rerating.
Rising new supply and presales in 4Q15. In 4Q15, the value of new launches rose 24% YoY and 30% QoQ while presales of the seven leading property developers (AP, LH, LPN, PS, QH, SIRI, and SPALI) grew 38% YoY and 25% QoQ, both driven by strong momentum for low-rise. This brought 2015 new launches to Bt424bn (+28% YoY) and total presales to Bt181bn (+15% YoY) thanks to condo recovery.
4Q15 best. Combined net profit rose 11% YoY, but jumped 47% QoQ to Bt11bn in 4Q15, 35% of 2015 profit of Bt31bn - growth of just 2% YoY. The rise in 4Q15 indicated the return of transfers, aided by government incentives, plus more housing completions. Revenue rose 25% QoQ to Bt57.8bn and gross margin improved 110bps to 33.7%.
More presales in 2016. The top seven developers target Bt215.6bn in presales in 2016, +19% YoY, gaining Bt20.5bn or 10% of target in 2M16. Demand will be largest in the mid to high income group since they feel the slow economy least and have the most room for borrowing. The household debt/income ratio was nearly unchanged for this group at 19-24% in 2009 versus 19-25% in 2013 (latest survey by NSO), far below the bank's threshold of 50-70%. Those in the low income group are heavily indebted with household debt/income ratio rising to 50percent from 47%, meaning they are less able to buy despite incentives. Presales will peak in 2Q16-3Q16 as condo launches multiply.
Household debt accumulation slowing. BoT data shows high outstanding household debt at ~81% of GDP at end-2015, but there is a bright spot - new debt is growing at a much slower rate in both absolute terms and percentage of GDP. Our view is that household debt bottomed out and will stabilize: good news for housing.
Small profit growth. With low aggregate backlog of Bt135bn at end-4Q15, -21% YoY, we expect small revenue growth of 6% with net profit growth of 4% (core profit growth of 11%) in 2016. Earnings visibility is also lower with backlog securing only 39% of 2016 versus 50-59percent for 2013-2015.
Would incentive extension help? The uncertainty about extension leads us to leave this out of our model, where we assume an April 29 end date. We continue to hold that these are not boosting demand, simply helping transfers especially for condos, which were purchased several years ago. If it is extended, the benefit to developers in the lower transfer fee will raise earnings by merely 3%, not enough for stock rerating.
Top pick: LH. We like LH, as its earnings are turning the corner to a growth cycle in 2016-2017 with good core profit growth of 18% in 2016 and 23% in 2017. With record backlog of Bt20.4bn, LH's earnings visibility is improving and forecast risk is reduced.
Resource: http://www.nationmultimedia.com
The top seven property developers did better last year with a 15% jump in presales - but aggregate profit inched up just 2% as income from the condo presales will be booked over the next several years. We estimate presales growth of 19% this year for our top seven, with demand largely in the mid to high end segment, where household debt to income is lower. However, profit will grow less as backlog is less. An extension of the government's incentive program offers little earnings upside at 3%, unlikely to bring stock rerating.
Rising new supply and presales in 4Q15. In 4Q15, the value of new launches rose 24% YoY and 30% QoQ while presales of the seven leading property developers (AP, LH, LPN, PS, QH, SIRI, and SPALI) grew 38% YoY and 25% QoQ, both driven by strong momentum for low-rise. This brought 2015 new launches to Bt424bn (+28% YoY) and total presales to Bt181bn (+15% YoY) thanks to condo recovery.
4Q15 best. Combined net profit rose 11% YoY, but jumped 47% QoQ to Bt11bn in 4Q15, 35% of 2015 profit of Bt31bn - growth of just 2% YoY. The rise in 4Q15 indicated the return of transfers, aided by government incentives, plus more housing completions. Revenue rose 25% QoQ to Bt57.8bn and gross margin improved 110bps to 33.7%.
More presales in 2016. The top seven developers target Bt215.6bn in presales in 2016, +19% YoY, gaining Bt20.5bn or 10% of target in 2M16. Demand will be largest in the mid to high income group since they feel the slow economy least and have the most room for borrowing. The household debt/income ratio was nearly unchanged for this group at 19-24% in 2009 versus 19-25% in 2013 (latest survey by NSO), far below the bank's threshold of 50-70%. Those in the low income group are heavily indebted with household debt/income ratio rising to 50percent from 47%, meaning they are less able to buy despite incentives. Presales will peak in 2Q16-3Q16 as condo launches multiply.
Household debt accumulation slowing. BoT data shows high outstanding household debt at ~81% of GDP at end-2015, but there is a bright spot - new debt is growing at a much slower rate in both absolute terms and percentage of GDP. Our view is that household debt bottomed out and will stabilize: good news for housing.
Small profit growth. With low aggregate backlog of Bt135bn at end-4Q15, -21% YoY, we expect small revenue growth of 6% with net profit growth of 4% (core profit growth of 11%) in 2016. Earnings visibility is also lower with backlog securing only 39% of 2016 versus 50-59percent for 2013-2015.
Would incentive extension help? The uncertainty about extension leads us to leave this out of our model, where we assume an April 29 end date. We continue to hold that these are not boosting demand, simply helping transfers especially for condos, which were purchased several years ago. If it is extended, the benefit to developers in the lower transfer fee will raise earnings by merely 3%, not enough for stock rerating.
Top pick: LH. We like LH, as its earnings are turning the corner to a growth cycle in 2016-2017 with good core profit growth of 18% in 2016 and 23% in 2017. With record backlog of Bt20.4bn, LH's earnings visibility is improving and forecast risk is reduced.
Resource: http://www.nationmultimedia.com
No comments:
Post a Comment