• Maintain BUY and THB24.90 TP, 31% upside and c.5% yield. With the aggressive expansion into provincial areas, presales on a YTD basis have been as solid as the numbers in previous years. Therefore, we believe that Supalai has been successful in diversifying its business risk better than its large peers. This stock remains our Top Pick.

• Solid performance in provincial markets. The company had unveiled its FY22 business plan with an aggressive launch of new projects in provincial areas in order to diversify its portfolio from the concentration in Bangkok and vicinities along with only a few major provinces. As such, 1H22 presales in provincial areas surged +45% YoY for the low-rise segment and +10% YoY for the condominium segment – the solid momentum also continued in July and August. Its strong presales growth of the provincial low-rise segment confirms that Supalai is on the right path.

• Overall good presales throughout provinces. Based on its new provincial projects launched on a YTD basis, the majority have commanded better-than-expected presales, especially projects in major tourist destinations. Among them were the Top 5 locations: i) Chonburi, ii) Phuket, iii) Rayong, iv) Chiang Mai, and v) Chiang Rai where housing demand was from locals as well as foreigners. However, the least popular location was Surat Thani where the locals’ purchasing power is heavily reliant on agricultural crops and prices.

• Provincial projects still prominent in FY23F. After boosting new project launches in the provincial areas during 9M22, we think Supalai will now focus on Bangkok and vicinities in 4Q22. However, it will continue to roll out new provincial projects in FY23F based on the healthy presales in FY22F.

• Strong orderbook on hand. In addition to the robust provincial housing projects, FY22F earnings are supported by its current orderbook worth about THB13.7bn, underpinning 2H22F core revenue (60% derived from the transfer of low-rise units). However, the risks specific to the low-to-mid end market especially in provincial areas cannot be ruled out including i) interest rate rises that would result in more expensive loans for homebuyers; ii) cost burden from minimum wage revision; and iii) purchasing power eroded by inflation. Therefore, we still expect FY22F net profit to decline by 18% YoY.

• Based on our proprietary methodology, we derive a 3.40 ESG score for this stock. Our intrinsic value is based on 9x P/E, to which we apply a 2% ESG premium, to arrive at a TP of THB24.90. 

Source: RHB Research - 16 Sep 2022