SPALI (2.64) remains on my buy list.
Supali remains my top choice in the still buoyant property sector.
SPALI (2.64), a top 5 property developer, has finally taken a bit of a price correction, this after a fabulous run from around 2.20 up to 2.82 during the past 4 weeks. This still represents a 25% increase, so by far exceeding the barely 6 -7 % run of the SET benchmark index during this same time. Brokers and other press coverage report that the Thai Bank stocks lead the market higher but clearly this property stock, a key choice of mine, performed at least 2-3 times better then the Bank loaded SET index.
The company has a market cap. of around 3 Billion Baht, or about 80 Mill US$. Recently the average daily trading volume has been around 18 million shares per day, translating into about 1 Mill US$ of trading volume, per day. Total shares outstanding are 1.229 Billion shares, par value in 1. There are 480 million warrants outstanding but they are "deep in the money", as being convertible at 1 and 1.5 Baht per share, per warrant. The dilution effect down the road on EPS is 28%. 70 million come due in June of "06 and the rest not until August "08.
--SPALI is trading at a cheap P/E of less then 6 and with a P/BV at around 1.
--SPALI is has an ROE of 19.1% and still a high expected dividend yield of above 8%, on the current higher market price today of 2.64.
--SPALI is still trading at a discount to the sector (even when excluding the by far largest property stock, LH)
--Some 6.4 Bill Baht of revenue has not yet been recognized due to proper accounting stipulation.
SPALI (2.64) remains a model portfolio selection and my view remains bullish, despite the recent price increase. I view profit taking as premature and would use the current mild price correction as a buying opportunity for those members whom missed it, or came on late. Lower long term interest rates in Thailand, softening price increases on material costs besides a still buoyant Thai property sector bode well for further appreciation in this stock this year, in my view. As a "top 5" property developer in Thailand, SPALI has huge barganing power when purchasing building materials.
Regarding long term interest rates trends, here is what I posted in our member lounge, just yesterday:
"Some 6 months ago 10 year Thai Bond long term interest rates where yielding 6.8% ago vs 5.5% now. Thai long term yields have decreased a bunch, compared to this key bond benchmark as indicator of long term interest rates in Thailand. Few are talking about this, but I am. Also construction costs have now eased with steel prices leading the way. There is a sort of regeneration of property stocks and so construction not lagging far behind in my view. These are the key reasons why I remain rather overweight on the sector. The other reason are dividends, many like TICON, DCC and SPALI are likely to be big dividend cows in year 2006."
Not to be understated and so worth mentioning again: "The other reason are dividends, many like TICON, DCC and SPALI are likely to be big dividend cows in year 2006". Supali is trading at an undemanding valuation along with high expected dividend return, even at the current higher price of 2.64.
Supalai’s new "Casa Riva":
One of the interesting new projects of Supali for year 2007 is a condominium project called "Supalai Casa Riva". This is a Mediterranean style waterfront resort, right on the mighty Chao Phraya River. Its one of the most exciting projects here in years… Four separate towers will rest on a superb spot extending into the river. Over 8 Rai of open space in an overall 14 Rai project will fit into a thumb shaped, "magnificent curve" landlot, into the river.
This is a strategic attractive location with plenty of fresh air, sunset and sun-up views, and yet just 4 KM from Silom and Sathorn roads. No doubt transportation on the river itself will allow for easy access to the busy city river banks. I don"t mean to make this sound as real estate promotion here, but reviewing their brochure and speaking to management about this, sure got me wanting to own a Condo in this project! I think "Casa Riva" should be a grand sell out success, due to its superb location on the now rapid development of new river properties in Bangkok. If you go for a tour of this project when in Bangkok do let me know, as I can probably have you taken around by a senior SPALI management person. (Just to be clear, of course I have no affiliation with SPALI and receive no benefits whatsoever if you buy a Condo there.)
Casa Riva is a 2.5 Bill Baht project and claims to be 33% sold out with an expected completion date of mid to late year 2007.
Despite sharp material cost increases in year 2005 Spali has been able to maintain a stable net profit margin of some 24-25%. Recently Supali has recorded sharp increase in profits, due to increased sales of condo units. The consensus earnings per share (EPS) for year 2005 is expected at 0.38 Baht per share, resulting in a current p/e for SPALI of around 6 at the current market price. In year 2006 earnings are expected by consensus to be 0.44 per share, tamed due to "material price increases". I think this is too conservative. The dividend per share should be around 0.20 Baht, or for an annual yield of 7.5%.
Due to rising material costs, margins are likely to be squeezed further; as stated I think this is less of a concern then the consensus analyst think. I believe this is last years" prime concern because many key material prices have eased kist recently. Also, financial risk position is low because of low debt levels, SPALI debt to equity ratio is less then 1! Past margins are impressive, but due to future expected material price increase uncertainties, it"s a bit unclear how well this will be maintained. Much will depend on global oil prices, which I count on to stabilize between 60 and 70 US$ per barrell this year.
Some points regarding the just past fourth quarter "05, are:
•4Q05 is expected to have poorer earnings and sales when compared to 3Q05 but better than 2Q "05.
•4Q05 sales should show an increased of some 21% YoY
•4Q05 net income is expected to increase 122% YoY
Single detached Homes are 65% of revenue with Condo’s 35%, this portion should change in year 2006 to 55% of revenues coming from Condo’s next year. Their latest completed project called "City Home 1", sold out like "hot cakes".
"Originally developed Single Detached Houses, SPALI has now expanded its portfolio into developing low/mid-end condominiums and apartments as well as resorts and office buildings"
Source: Company Website, www.supalai.com
Best Regards,
Paul A. Renaud.
