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Ananda Development: 2Q earnings to be weak with stronger presales Jiraporn Linmaneechote 02 305 9197 [email protected] Good presales with weak earnings expected in 2Q ANAN moved up parts of its launch plans from 3Q to 2Q, which will result in ANAN launching five condo projects to be developed under JV with combined value of Bt21bn in 2Q. In sum, ANAN will launch 12 condo projects, of which nine condo projects will be developed under JV, and five landed property projects with combined value of Bt42.8bn. ANAN also plans to have a big marketing event at the end of June. We expect to see good presales in 2Q but this would result in weak earnings from higher marketing expenses in the quarter. Earnings should remain weak until 4Q but we believe good presales can be a near-term catalyst. We reiterate our Buy on ANAN on its two-year growth profile with good revenue visibility, especially on JV projects. Recommendation: Buy 15 May 2017 Target Price: Bt6.10 Clarification on divestment gains Price Bt4.60 Market Value (Bt mn) 15,332 Date Established Average Daily Value (Bt mn) Free Float (%) 23-Feb-17 33.42 34.1% Price ANAN realized divestment gains of Bt57mn (net of tax) from the restructuring of a JV, Ananda MF Bangchak (AMB) for its Ideo Sukumvit 93, in which ANAN is setting up another JV, Ananda Apac Bangchak as a subsidiary under AMB. In sum, ANAN reduced its holding in the JV to 26% from 51%. This would lead to lower equity income in 2018 when the project is scheduled for completion and transfer. Operations update, 4Q to be the best quarter ANAN achieved presales of Bt4.4bn (down 7% YoY and 56% QoQ) in 1Q17. This represented 15% of its Bt30bn presales target. Note that ANAN launched two condo projects with combined value of Bt1.9bn and one landed property project with value of Bt1.6bn in 1Q. We expect to see improving presales momentum in 2Q from the changes in its launch plan. We should see stronger earnings in 2H17 from the schedule of condo transfer, mainly from JV projects. Note that ANAN will have 12 condo projects completed this year and five are projects under JV. ANAN has secured 60% of our 2017 revenue target and nearly 100% on JV revenue target. (Bt) Net Income (Reported - mn) EPS EPS Change (YoY) DPS May-17 -150% Nov-16 - Jun-16 Estimates (Dec) -100% Jul-15 -50% 1.0 Dec-15 0% 2.0 Feb-15 50% 3.0 Aug-14 100% 4.0 Mar-14 150% 5.0 Sep-13 6.0 ANAN (LHS) % Relative to SET Index (RHS) Source: SET Issued by Phatra Securities Public Company Limited ("Phatra"). Phatra does and seeks to do business with companies covered or mentioned in its research reports. As a result, investors should be aware that Phatra may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures at the back of this report. 2014A 1,207 0.36 -0.6% 0.10 2015A 1,501 0.45 24.4% 0.11 2016E 1,861 0.56 23.9% 0.13 2017E 2,322 0.70 24.8% 0.17 2018E 2,491 0.75 7.3% 0.20 2014A 12.71 2.2% 10.4 -12.0% 2015A 10.21 2.3% 14.6 -16.3% 2016E 8.24 2.9% 13.0 -0.2% 2017E 6.60 3.6% 14.5 3.7% 2018E 6.15 4.3% 16.6 1.0% Valuation (Dec) (Bt) P/E Dividend Yield EV / EBITDA Free Cash Flow Yield 15 May 2017| 1 Bus Performance Return on Asset Return on Equity Operating Margin Free Cash Flow 2015A 6.4% 15.4% 18.6% (1,839) 2016A 6.6% 15.4% 13.0% (2,500) 2017E 7.1% 15.7% 12.1% (33) 2018E 8.3% 16.9% 12.2% 570 2019E 8.4% 16.2% 11.6% 148 Quality of Earnings Cash Realization Ratio Asset Replacement Ratio Net Debt-to-Equity Ratio Interest Cover 2015A 60.3% 170.0% 16.8% 0.7 2016A 127.5% 107.5% 18.1% 0.8 2017E 37.7% 262.1% 19.0% 0.6 2018E 30.4% 514.4% 19.0% 0.6 2019E 11.5% 109.2% 20.0% 0.6 Income Statement Data (Dec) (Bt Millions) Sales % Change EBIT % Change EBITDA % Change Net Interest & Other Income Net Income (Adjusted) % Change 2015A 2016A 2017E 2018E 2019E 10,740 4.0% 4,159 5.9% 2,062 6.9% 31 1,207 -0.6% 11,730 9.2% 4,043 -2.8% 1,622 -21.4% 165 1,501 24.4% 13,850 18.1% 4,672 15.6% 1,791 10.4% 122 1,861 23.9% 12,377 -10.6% 4,181 -10.5% 1,622 -9.4% 56 2,322 24.8% 11,690 -5.6% 3,878 -7.3% 1,469 -9.4% 10 2,491 7.3% Cash Flow Data (Dec) (Bt Millions) 2015A 2016A 2017E 2018E 2019E Depreciation & Amortization Change in Working Capital Capital Expenditure Free Cash Flow 1,207 70 (1,025) (183) (1,839) 1,501 95 433 (487) (2,500) 1,861 113 (869) (124) (33) 2,322 115 (675) (125) 570 2,491 117 (921) (126) 148 Balance Sheet Data (Dec) Cash & Equivalents Trade Receivables Other Current Assets Property, Plant & Equipment Other Non-Current Assets Total Assets 2015A 2,573 122 13,447 517 (282) 20,471 2016A 2,683 369 15,694 903 (575) 25,366 2017E 2,000 290 17,184 906 (563) 27,131 2018E 2,000 259 17,510 910 (549) 28,517 2019E 2,000 245 18,322 913 (534) 30,751 Short-Term Debt Other Current Liabilities Long-Term Debt Other Non-Current Liabilities Total Liabilities 2,712 2,941 6,023 68 11,743 6,014 3,532 4,951 113 14,612 9,054 4,027 949 119 14,149 9,783 3,596 474 123 13,975 10,588 3,423 440 131 14,581 Total Equity Total Equity & Liabilities 8,727 20,471 10,754 25,366 12,982 27,131 14,541 28,517 16,170 30,751 Net Income from Cont Operations (GAAP) 15 May 2017| 2 Figure 1: ANAN – 1Q earnings review (Bt mn) Sale of real estate Total revenue Cost of real estate sold Total cost of sales Gross profit - real estate Total gross profit Total SG&A expenses EBIT EBITDA Other income/ expense Interest expense EBT Taxes EAT & before special items Total share of profit from associates & JV NI EPS (Bt) Pre-exceptional EPS (Bt) Key ratios Gross margin - real estate (%) Gross margin (%) OPEX as % of sales (%) EBIT margin (%) EBITDA margin (%) Tax rate (%) Net margin (%) 1Q17 1,577 2,183 (1,099) (1,461) 478 722 (548) 174 145 60 (87) 147 (6) 141 (58) 140 0.04 0.03 1Q16 2,179 2,529 (1,381) (1,597) 798 933 (626) 307 327 66 (69) 305 (48) 257 (108) 149 0.04 0.04 % YoY 30.3% 33.1% 25.1% 8.0% 6.6% 4.1% 6.4% 36.6% 36.9% 24.7% 12.1% 12.9% 15.6% 5.9% N.A. N.A. N.A. N.A. N.A. N.A. N.A. -27.6% -13.7% -20.5% -8.5% -40.0% -22.6% -12.4% -43.3% -55.8% -9.0% 27.0% -51.7% -87.2% -45.2% -46.9% -5.6% -5.6% -43.9% 4Q16 % QoQ 2,716 -41.9% 3,531 -38.2% (1,903) -42.3% (2,396) -39.0% 813 -41.1% 1,135 -36.4% (719) -23.8% 416 -58.2% 444 -67.5% 235 -74.5% (93) -6.7% 558 -73.7% (84) -92.8% 474 -70.3% 420 -113.7% 893 -84.3% 0.27 -84.3% 0.27 -90.7% 29.9% 32.1% 20.4% 11.8% 12.6% 15.1% 25.3% N.A. N.A. N.A. N.A. N.A. N.A. N.A. Source: Company, Phatra Securities estimates Figure 2: ANAN – Quarterly presales (Bt mn) 12,000 10,000 8,000 6,000 4,000 2,000 Co ndo 1Q17E 3Q16 1Q16 3Q15 1Q15 3Q14 1Q14 3Q13 1Q13 3Q12 1Q12 0 Landed P ro perty Source: Company, Phatra Securities estimates 15 May 2017| 3 Figure 3: ANAN - Revenue secured by backlog on hand (including JV projects) (Bt mn) 30,000 24,000 18,000 12,000 6,000 2016E 2017E Secured by backlog 2018E Unsecured rev enue Source: Company, Phatra Securities estimates Figure 4: ANAN - Quarterly launches (Bt mn) 20,000 15,000 10,000 5,000 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17E 3Q17E 4Q17E - Condo Landed property Source: Company, Phatra Securities estimates 15 May 2017| 4 Figure 5: ANAN – P/E band Figure 6: ANAN – Trailing P/E Source: SET, Phatra Securities estimates Source: SET, Phatra Securities estimates Figure 7: Property Comp Price SPALI LH AP PSH LPN QH SIRI ANAN SC Average (Bt) 24.50 10.00 7.65 22.10 10.80 2.50 2.02 4.60 3.30 Market cap (US$ mn) 1,211 3,395 693 1,391 459 771 831 442 397 Core EPS (Bt) 16A 2.85 0.67 0.83 2.72 1.47 0.29 0.23 0.45 0.46 17E 3.25 0.76 0.93 2.91 1.13 0.32 0.25 0.56 0.41 18E 3.60 0.81 1.06 3.15 1.47 0.35 0.26 0.70 0.51 Recurring EPS growth 16A 12.4% 17.8% 5.3% -20.2% -10.3% -1.8% 14.7% 24.4% 7.0% 2.8% 17E 14.3% 12.6% 12.2% 6.8% -22.9% 9.6% 7.8% 23.9% -11.1% 7.9% 18E 10.8% 6.2% 13.1% 8.3% 29.7% 9.8% 5.7% 24.8% 23.4% 11.0% Core PER (x) 16A 8.61 14.82 9.19 8.11 7.36 8.68 8.70 10.21 7.15 10.74 17E 7.53 13.16 8.19 7.60 9.55 7.92 8.07 8.24 8.04 9.81 18E 6.80 12.39 7.25 7.02 7.36 7.21 7.63 6.60 6.52 8.95 Yield (%) 17E 4.91 7.24 4.39 6.68 6.39 6.31 6.20 2.91 5.22 6.17 PBV (x) 17E 1.59 2.40 1.13 1.25 1.25 1.08 0.95 1.18 0.90 1.63 ROE (%) 17E 22.6% 18.8% 14.4% 17.1% 13.3% 14.2% 11.7% 15.7% 11.5% 14.6% Housing P/E 17E 7.53 8.75 8.19 7.60 9.55 (2.82) 8.07 8.24 8.04 7.38 Source: Companies, Phatra Securities estimates 15 May 2017| 5 18E 6.80 8.53 7.25 7.02 7.36 (2.29) 7.63 6.60 6.52 6.82 Price objective basis and risk Our 12-month price objective (PO) of Bt6.10 is based on an average of (1) P/E of 8.60x, which would put it on par with mid-cap peers, which we think is conservative given that ANAN has a solid growth profile; and (2) the combination of the DCF valuation for ANAN and joint ventures to take into account the company's backlog on hand, which has secured part of our revenue estimates for 2017-2019 period. Our DCF valuation is based on a 2% terminal growth rate and a discount rate of 9.5%9.7%. Risks to our PO are political headwinds, weaker-than-expected economic conditions, slower-than-expected housing sales, higher-than-expected competition among developers, tighter mortgage financing policy from commercial banks and a stronger-than-expected increase in interest rates. Special Disclosures Phatra Securities does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Phatra Securities Public Company Limited ("Phatra") under its proprietary trading desk, may, from time to time, issue derivative warrants that have underlying securities contained or mentioned in this research report. Should Phatra be the issuer of the derivative warrants, Phatra may act as the market maker for such derivative warrants. As a result, investors should be aware that Phatra may have a conflict of interest that could affect the objectivity of this research report. 15 May 2017| 6 Opinion Key: Investment ratings, indicators of expected total return (price appreciation plus dividend yield) within the six-month period from the date of the initial rating or the last change in the rating, are: 1 Buy stocks which are expected to have a total return of at least 15%; 2Trading Buys which are expected to have a total return between 0-15%; ; 3 Neutral stocks which are expected to remain flat or move in a range between +10 to minus 10%; 4- Take Profit stocks which are expected to have a total return of 0 to negative 15%; and 5 Underperform stocks are the least attractive stocks in a coverage cluster (Thailand). Stocks not under coverage are designated Not Rated. Copyright 2017 Phatra Securities Public Company Limited (“Phatra Securities”). All rights reserved. Any unauthorized use or disclosure is prohibited. For distribution outside of Thailand, the distribution will be restricted to only “institutional investors” or other similar types of investors as stipulated in each jurisdiction. In preparation of this research report, Phatra Securities has assumed and relied on the accuracy and completeness of all information or data supplied or otherwise made available to us including public available information. Phatra Securities assumes no responsibility for independent investigation or verification of such information and have relied on such information being complete and accurate in all material respect. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options, futures or other derivatives related to such securities ("related investments"). Officers of Phatra Securities may have a financial interest in securities of the issuer(s) or in related investments. Phatra Securities or its affiliates may from time to time perform investment banking or other services for, or solicit investment banking or other business from, any entity mentioned in this research report. This research report is prepared for general circulation and is circulated for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this research report. Phatra Securities assumes no obligation to update or otherwise revise this research report. Investors should seek financial and investment advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this research report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this research report. In addition, investors in securities such as ADRs, whose values are influenced by the currency of the underlying security, effectively assume currency risk. 15 May 2017| 7 Corporate Governance Report of Thai Listed Companies 2015 Disclaimer The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market of Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the data appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. Phatra Securities Public Company Limited ("Phatra") does not confirm nor certify the accuracy of such survey result. In addition, the list only includes companies under Phatra’s coverage except those specified. Companies with Excellent CG Scoring by alphabetical order under Phatra’s Coverage KTB SCB KBANK TISCO TMB BIGC HMPRO ROBINS SCC IRPC IVL PTTGC ADVANC DTAC INTUCH THCOM BCP EGCO RATCH PTT PTTEP TOP MINT MCOT VGI CPN LPN PS SPALI CK BTS PSL Companies with Very Good CG Scoring by alphabetical order under Phatra’s Coverage CPF GFPT TU TVO BBL TCAP GLOBAL TRUE BANPU BDMS CENTEL AMATA HEMRAJ TICON STEC TTCL AAV AOT THAI KTC TWPC MEGA MAJOR AP ERW LH QH SIRI WHA ITD Companies with Good CG Scoring by alphabetical order under Phatra’s Coverage M CPALL BJC SCCC STPI NOK CBG BA ESSO GLOW BH CHG BEC N/A - Companies without survey result available by alphabetical order under Phatra’s Coverage DIF BCH TLGF UNIQ BTSGIF SPRC BEM JAS SPF DW Disclosure: Phatra Securities Public Company Limited ("Phatra") under its proprietary trading desk, may, from time to time, issue derivative warrants that have underlying securities contained in the table below. Should Phatra be the issuer of the derivative warrants, Phatra may act as the market maker for such derivative warrants. As a result, investors should be aware that Phatra may have a conflict of interest that could affect the objectivity of this research report. AAV ADVANC AOT BANPU BBL BCP BDMS BH BLAND BTS CBG CK CPALL CPF CPN DTAC EARTH GL HANA HMPRO INTUCH IRPC ITD IVL JAS KBANK KTB KTC LH LPN MINT PS PTG PTT PTTEP PTTGC S50 SAMART SAWAD SCB SCC SIRI SPALI STEC STPI TCAP THAI THCOM TMB TOP TPIPL TRUE TTA TU UNIQ VGI WHA Anti-Corruption Progress Indicator of Thai Listed Companies 2015 Disclosure The disclosure of evaluation of Thai Listed Companies with respect to anti-corruption, the Anti-Corruption Progress Indicator (“Indicator”), is an initiative under the Securities and Exchange Commission (SEC)’s Sustainability Development Roadmap for Listed Companies which emphasizing good corporate governance, corporate social responsibility and firm commitment to fighting graft. The Indicator, comprising six level assessment of 0-5, is a result which demonstrate the commitment at management and organizational levels that adopted the policy to refrain from corruption. The survey result is as of the data appearing in the website of the SEC. As a result, the survey result may change thereafter. Phatra Securities Public Company Limited (“Phatra”) does not confirm nor certify the accuracy of such survey result. In addition, the list only includes companies under Phatra’s coverage except those specified. Anti-Corruption Progress Indicator: List of Companies (under Phatra’s coverage) Level 5 – Extended BCP CPN PTT PTTGC SCC Level 4 – Certified BANPU BBL EGCO ERW INTUCH IRPC SCB TCAP THCOM TISCO TMB TOP IVL KBANK KTB PSL PTTEP Level 3 – Established AAV ADVANC AP BDMS BEC BIGC BTS CENTEL CHG CK CPALL CPF DTAC GFPT GLOW HMPRO LH LPN MCOT MINT NOK PS RATCH ROBINS SCCC SPALI STEC STPI THAI TICON TU VGI WHA BH GLOBAL HEMRAJ M QH TRUE TVO UNIQ ITD MAJOR SIRI Level 2 – Declared AMATA AOT Level 1 – Committed BJC ESSO