Target price : Bt1.62
Recommendation : BUY
Closing Price (16 March 09) : Bt1.26
Presales figures not too bad, valuation too low
- MK's presales in the first two months of 2009 were in line with the broad market trend. The 2M09 presales figure came out largely within expectations. We forecast 2009 presales to fall by 25% in the face of a slowing sales environment.
- Despite a likely drop in 2009 presales, sizable backlog of roughly Bt1.1b carried into 2009 should keep revenue steady from a year ago. The headwinds of the expected margin decline as a result of high-cost housing inventories to be transferred in 1H09 and higher marketing expenses to shore up sales are expected to drag 2009 profit down by 10%. Transfer in the first two months of 2009 was still going well without significant backlog cancellations. The overall quality of backlog is strong enough to minimize revenue risks this year, in our view.
- Valuation in P/E terms and dividend yield still reflect that the current stock price is too low. We reiterate a BUY rating on MK with a price target of Bt1.62/share.
2M09 presales on track and in line with broad market trend: 2009 presales to fall 25% YoY in a slowing sales environment
MK generated presales of Bt300m in the first two months of 2009, of which Bt100m came in Jan and Bt200m in Feb. The presales momentum was in line with the overall trend of other big-cap developers, which saw Feb sales rise above Jan's levels, which held steady from exceptionally low sales in Dec 2008. We forecast presales to come in at Bt100m in Mar 2009. On this basis, we expect 1Q09 presales to be about Bt400m, down 20% from 1Q08's level of Bt480m. In our view, sales for the year to date are still on track to meet our 2009 presales target. We predict a 25% drop in 2009 presales to Bt1.7b from Bt2.3b a year earlier. The forecast assumes a fall in presales in the face of weakening purchasing power and slowing economic conditions. MK plans to launch only one new project in Pathum Thani worth Bt360m in early 2009 to replace the existing project which is about to be closed. Negotiations are currently under way to acquire land for new project developments in new locations likely to be launched in 2H09. That means MK would launch a small number of new project launches this year.
Sizable backlog of about Bt1.1b likely to keep 2009 revenue steady from a year ago but higher operating expenses along with rising costs and elevated marketing expenses to shore up sales set to drag 2009 profit down by 10%
In addition to a sizable backlog of about Bt1.1b carried into 2009, we expect MK to realize revenues of Bt936m from our 2009 presales forecast. Given YTD sales of Bt300m and backlog of Bt1.1b, MK would have revenue of roughly Bt1.4b on hand, representing 70% of our 2009 revenue forecast of Bt2,036m, flat from a year earlier. Because of the pre-sold or built-to-order strategy, which takes about 8-9 months from booking to ownership transfer, margins on housing inventories to be transferred in 1H09 would come under pressure, as construction took place from mid-2008 to 3Q08 when building materials prices hit record highs. We expect higher marketing expenses to cheer up sales will drag 2009 profit down by 10% to Bt364m, or Bt0.41 a share. The risk of backlog cancellations is relatively low. Transfer in the first two months of 2009 was still going well and backlog cancellations did not rise above normal levels.
Valuation & Recommendation
Growth outlook is deteriorating but the current valuation is too low. The stock is now trading at a mere 3x 2009 P/E with 2008-09 dividend yields of roughly 9-11%. At current valuation, we believe much of the negative news about the slowing growth outlook is already priced into the stock. Dividend yield is also strong enough to cushion downside risk. YTD presales were not worse than what we expected. The current stock price is too low, in our opinion. We reiterate a BUY stance on MK. Our price target of Bt1.62/share equates to 4x 2009 P/E.
By Phillip Securities (Thailand) Plc. on Mar 17, 2009
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