AP reported 2Q24 net profit of Bt1.26bn (-17.8% YoY but +25.8% QoQ) in line with forecasts, backed by revenue growth but pressured by lower gross margin and higher interest expense. In 2H24F, although solid backlog will bring good revenue, gross margin will be narrowed by product mix and higher interest expenses will continue. We thus downgrade our 2024F net profit by 12% to Bt5.38bn (-11%) with a net profit peak in 3Q24. Growth is lower in 2024-2025 so valuation is based on 10-year PE -0.5SD of 6x (from average of 7x), which gives a new 2025 TP of Bt10.60/sh (from Bt13.60/sh). We downgraded our three months call to Neutral from Outperform and we will revisit our call in 4Q24 since valuation is inexpensive against a yearly dividend and good net profit growth expected both YoY and QoQ in 1Q25.
2Q24 net profit in line. AP reported 2Q24 net profit of Bt1.26bn (-17.8% YoY but +25.8% QoQ) in line with INVX and consensus. 2Q24 revenue was Bt9.7bn (+5.5% YoY and +23.3% QoQ), 80% from low-rise and 20% from condos, after transfers began at Aspire Ratchayothin (project value Bt1.5bn with 75% transferred). Average gross margin was 34.9%, in line, on a lower margin of 33% on the new condo transfers. JV contribution was Bt154mn (-46.6% YoY but +13.2% QoQ) as transfers started at its new condo Life Phahon-Ladprao (project value Bt3.5bn). However, interest expense in 2Q24 leapt to Bt173mn (+115% YoY and +40.8% QoQ) as transfers started at new projects and interest on the loans can no longer be capitalized. Although this is a bit higher than our estimates, it was offset by higher other income, which rose QoQ, giving a 1H24 net profit of Bt2.27bn (-24.7% YoY).
Cut 2024 by 12%. As of July 31, AP has backlog of Bt42.6bn, with 56% to be recognized in 2H24 and the rest in 2025-2027. By product, backlog is 40% low-rise, 51% JV and 9% condo. We expect 3Q24F net profit to go up QoQ on low-rise backlog transfers and the start of transfers at the JV condo Life Rama4-Asoke (project value Bt6.5bn, take-up rate 48%), but drop YoY. However, we lowered our 2024F revenue by 7% to Bt39.1bn (+2.9% YoY) on lower demand than expected, giving 90% secured revenue in 2024. Gross margin in 2H24F is expected to be lower than in 1H24 from product mix and pressure from higher interest continuing in 2H24 and 2025. Our revised 2024F net profit is Bt5.38bn (-11%), 12% below our previous forecast.
Risks and concerns. Lower economic growth and consumer confidence may pressure residential demand and lead it to miss its presales target by +/-10% to the same value as in 2023. ESG key risks: AP obtains EIAs for both low-rise and condos, which helps lower environmental risks. It plans to work on reducing the environmental risk for low-rise projects by using more green energy (solar) and more efficient waste management.
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