SPALI – Preview 3Q24F: Net profit to jump YoY, QoQ

3Q24F net profit to jump 76.6% YoY and 31.5% QoQ. We forecast 3Q24 net profit at Bt2.1bn (+76.6% YoY and +31.5% QoQ), revenue of Bt10.8bn (+50.4% YoY and +35.7% QoQ) with 55% from low-rise and 45% from condos, the latter from backlog at Supalai Icon Sathorn and the start of transfers at a new condo, Supalai Loft Phasi Charoen Station (project value Bt1.1bn, take-up rate 96%, 83% transferred). Gross margin is expected at 37%, up from 36.6% in 3Q23 and 36% in 2Q24, backed by higher condo gross margin. JV contribution is expected to plunge 91.6% QoQ but surge 412% YoY off a low base. Meeting our preview would bring 9M24F net profit to Bt4.3bn (+8.6% YoY).

9M24 presales at 56% of 2024 target, expect 4Q24 to grow YoY and QoQ. SPALI reported 3Q24 presales of Bt6.7bn (+8% YoY and +4% QoQ) with low-rise value down 1% YoY but up 3% QoQ, while condo value grew 28% YoY and 6% QoQ. 9M24 presales came to Bt20bn (-15% YoY) reaching only 56% of its 2024 target of Bt36bn (+25%). This means it needs presales of Bt16bn in 4Q24 to reach target: we believe presales will come to just Bt30bn, missing target by +/-15%. Presales in 4Q24 are expected to be the year’s highest, growing YoY and QoQ on the launch of four new condos valued at Bt5.8bn. We expect 2024F presales to see 4-5% YoY growth.

New investment in Australia to close end of October. 12 new residential projects in Australia, delayed from early 2024, are now in the final step of investment approval and the deal is expected to close this month. Total investment is anticipated to come down from A$530mn to A$470-480mn; SPALI will have to make the first payment in 4Q24. We expect these to double JV contribution from 2025 onward.

Maintain 2024F and 2025F. Of current backlog of Bt13.2bn (42% low-rise and 58% condos), 60% will be booked as revenue in 4Q24 and the remaining 40% in 2025-2026. We thus maintain our 2024 net profit forecast of Bt6bn, flat YoY, with 4Q24F earnings dropping YoY and QoQ. From 4Q24, SPALI will need to bulk up backlog via expanding its low-rise sales base and more aggressive condo launches: low-rise buildings will fill up 2026 backlog, with 2027 populated by high-rise. Backlog in 2025 is low, securing only 8% of our revenue forecast of Bt30.8bn (-3.7%); net profit with the new Australia venture included is forecast at Bt6.3bn (+5.1%).

Risks and concerns. Inventory management: since 2024 is SPALI’s highest year ever for launches in terms of value at Bt50bn, unsold units and inventory management in 2025 will be key to earnings and cash flow. Currently, SPALI has put 105 of the unsold units in Supalai Icon Sathorn up for long-term rentals.

ESG key risk. Although SPALI obtains EIAs for residential projects, which helps lower environmental risks, lawsuits have been filed against some condos, which we see as ESG risks for environmental and social elements as they affect surrounding neighborhoods and governance.