High Conviction: AP – New high earnings in 2023 after upgrade

We maintain AP as our stock pick with 2024 TP of Bt15/share. 2Q23F net profit is expected to grow slightly QoQ on a solid low-rise gross margin, but slip YoY. We raise our 2023 net profit by 3.5% to Bt6.24bn to factor in a stronger (and new high) for gross margin, giving a new high for 2023 net profit. Profit will continue to grow in 2024F.

Catalysts.

• 2Q23F net profit up slightly QoQ but down YoY. We forecast AP’s 2023F net profit at Bt1.51bn (-3.8% YoY but +2.4% QoQ) on revenue of Bt9.1bn (-7.4% YoY and -2.9% QoQ), 3% from condos and 97% from low-rise. Projects transferred in the quarter include The City Bangna, Centro Bangna, Moden Bangna and The City Pinklao-Borom 3. Average gross margin is expected at 36.2% vs. 36.6% in 1Q23 and 33.6% in 2Q22, viewed as strong if we exclude an extra gain of Bt40mn from adjusting cost from a condo in 1Q23. Share from JV is forecast at Bt288mn (-23.8% YoY but +20.8% QoQ) backed by continuing transfers at the Rhythm Charoenkrung Pavilion. If 2Q23F net profit is as expected, 1H23F net profit will be Bt2.99bn (-9.4% YoY).
• 2H23 presales to continue to grow. 1H23 presales came to Bt23.6bn (-7% YoY), 41% of its 2023 presales target of Bt58bn (+15% YoY). Although its 2023 presales target seems challenging, we believe AP will achieve presales of at least Bt52-53bn, 5-6% growth, backed by the 2H23 new launches of Bt56bn.
• Backlog remains strong. Of AP’s backlog, after deducting 2Q23 revenue of Bt31bn, 45-50% should be realized in 2H23 and the rest in 2024-2026.

Action & recommendation.

Upgrade 2023: net profit growth of 6.2% to new earnings high.

We maintain our tactical call of Outperform based on PE of 7.4X (+0.25SD) with a 2024TP of Bt15.0/sh.

Key risk. Elements to watch: 1) Continued steps up in interest rate in 2H23 and rejection trend, needing to keep an eye on buyer quality, 2) inventory management of the massive launches in 2022 coupled with many new launches in 2023, 3) increasing competition as supply rises and 4) the possibility of a minimum wage increase at yearend.