The environment is becoming more difficult. Thailand’s big five property
stocks have gained 86-244% YTD, turning around the valuations from nearly
2 standard deviations (s.d.) below average to close to 1 s.d. above average,
reflecting the much-improved property market. As a result, room for
operational improvements and share price gains look limited.
■ We believe investors do not fully realise the changes in the market
environment. These include: 1) growing competition, 2) limited room for
further sales improvement, 3) rising material costs, 4) a reversal in interest
rates and 5) the high risk that property tax incentives will not be extended
next year. These factors blind investors from the fact that stock valuations
are now rather demanding. Within the context of Thailand, we recommend
investors lock in profits and switch from property to banks (which possess
higher potential upside). On the other hand, if investors still want exposure to
the Thailand property sector, we recommend a switch from LH to QH (which
has a better earnings outlook, attractive value and more liquidity).
■ QH is our top pick. Within the sector, we rate QH OUTPERFORM, given its
solid earnings outlook for the next year and still attractive potential upside
(versus our new target price, which is now derived on an RNAV basis). We
downgrade LH to UNDERPERFORM (from Neutral), since LH is no longer
an investible liquid name (QH is now the most liquid stock). Besides, its
uninspiring earnings outlook versus its peers does not justify the huge
premium the stock commands. We also downgrade LPN and AP to
NEUTRAL (from Outperform), since their share prices have met our targets.