fabulous FOUR
Positive upside surprises for the Fantastic Four
Except for LH, we have lifted our earnings forecasts for four fantastic
developers under our coverage by 16-23% during 2009-10. The betterthan-
expected sales recovery seen in 1Q09 should carry on for the rest
of this year despite Thailand’s political hiccup in April, which we believe
led to only a temporary disruption. Crucially, developers’ profitability is
holding up stronger than we’d anticipated even though we’re still in a
recession. We believe these two achievements are derived from strong
management execution and proactive bottom-up product strategies.
Developers which outperform are those with a diversified product mix in
the form of pricing, product type and/or geographical coverage.
Industry dynamics favour big players
It took just two weeks for the five leading developers under our coverage
to approach/break our TPs. But we feel more confident about the sector
as visitor traffic has improved along with monthly presales. Even though
residential housing demand has been dampened by the recession, new
residential housing supply contracted by 51% in 1Q09, according to the
Agency for Real Estate (AREA). We also see a divergence in achieved
gross profit margin favoring developers with product initiatives and brand
differentiation. Key competitive advantages for big players remain their
better and cheaper access to capital, greater economies of scale and
more diversified product mix. With rapid changes in consumer tastes, it’s
wiser to focus on fast asset turnover rather than accumulating landbank.
Demand boosted by lower rates
We believe that recent interest rate cuts will help stimulate demand for
the rest of 2009. YTD, the policy rate cut has come down to 1.25% while
commercials banks recently lowered their minimum lending rates to
5.85%. As QH and LPN have outperformed their peers, we switch back
to AP and stick to QH as top BUYs. After raising earnings estimates, our
TPs are brought up by 44% for AP, by 43% for PS, by 33% for QH and
10% for LPN. But we downgrade our call on LH to HOLD since it’s
trading at fair value. Going into 2010, we expect sector earnings growth
to be capped by the expiry of tax incentives. However, QH should enjoy
a strong performance as two condo projects are due for completion.
Contents
Positive surprises from the Fabulous Four .................................................................... 3
Except for LH, we upgrade earnings for four fantastic developers under our coverage by 16-23% during
2009-10. The better-than-expected sales recovery seen in 1Q09 should continue for the rest of this
year despite Thailand’s political hiccup in April which we believe led to only a temporary disruption.
Industry dynamics favour big players ............................................................................ 7
Following stronger-than expected 1Q09 results, we believe the current recession has led to a much
swifter sector profit consolidation than we’d assumed, thanks to a major drop in new residential supply.
While residential housing demand is slowing, developers are seeing much less competition.
Our preferred investment choices................................................................................ 12
After LPN and QH’s share price catch-ups over the past two weeks, we now recommend switching
back to AP and stick to QH as top BUYs because their earnings momentum is backed by presales
visibility.
Company updates........................................................................................................ 19
Asian Property Devt .......................................................................................................................20
Land and Houses ...........................................................................................................................23
LPN Development ..........................................................................................................................26
Preuksa Real Estate ......................................................................................................................29
Quality Houses..............................................................................................................................32
Thailand Research Team
Chutima Woramontri
Head of Research, Property and Construction
Thanachart Securities PCL
(66) 2617 4960
chutima.wor@thanachartsec.co.th
Pimpaka Nichgaroon,