Ticker PRIN
Stock Rating TRADING
Previous Rating TRADING
Fair Value Bt1.30
Current Price Bt1.05
Upside/(Downside) 23.8%
Consensus (median) Bt0.93
Diff from Consensus 39.8%
Sector Property Development (Residential)
Sector Rating NEUTRAL
On the verge of better liquidity
Cash inflows from the sale and transfer of projects in 2Q09 will lead to an improvement in liquidity and the net D/E ratio falling. We are raising our fair value to Bt1.30 to reflect a lower gearing and transfers of condo projects.
High leverage to reduce this year.
PRIN experienced an increase in leveraging stemming from its simultaneous launch of three condo projects (The Complete Ratchaprarob, The Pulse Paholyothin 37 and The Complete Narathiwatrachanakarin) back in early 2007. Unfortunately, as these did not pass EIA approval, construction permits were not issued, and thus PRIN was unable to deliver units to customers in 2008. The result was that its net D/E ratio rose from 1.2x in 2007 to 1.4x in 2008. We foresee liquidity improving as i) the management believes units of two condo projects, The Complete Ratchaprarob and The Pulse Paholyothin 37, and units of a resort condo project, The Pride Pattaya sai 2, will be transferred to customers starting in 2Q09, which will provide cash inflow of Bt2.1bn; and ii) PRIN has sold land located in the Pinklao and Ratburana areas to LPN in April. As a result, the net D/E ratio should come down to around 0.84x this year.
Condo projects to boost 2009 revenue.
PRIN’s liquidity situation should improve in 2Q09 due to cash obtained from the transfer of condo units and the sale of land. Our revenue projection for 2009 therefore calls for a rise of 25.3% YoY. The gross margin looks likely to narrow, however, to 21.4% vs 23% in 2007 and 24% in 2008 owing to cost overruns from the delay in delivering the mentioned condo projects. This is the factor behind our estimated small full-year net profit growth of 4% YoY.
Recommendation and valuation.
Sufficient liquidity is the key to enable PRIN to continue growing earnings and launching future projects. Due to its tough financial situation, P/E and P/BV are trading at discounts to the average of its peers. Sooner or later, though, cash inflows from the sale and transfer of projects will lead to an improvement in liquidity, which will be a major share price catalyst. On this, we maintain our “Trading” call, while we raise our fair value from Bt1.10 to Bt1.30 to reflect a lower gearing assumption and transfers of condo projects. Our fair value is based on a prospective 4x P/E, which is a discount to the average 7.25x of its peers.
By Ayudhya Securities Public Company Limited on May 22, 2009
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