Challenging business targets for FY16

　　Management has set its FY16presales target of Bt42bn, up as much as 47% from Bt28.5bn in FY16on expectations that SDH/TH presales will rise 34% y-y to Bt14.7bn and condo presales will surge56% y-y to Bt27.3bn. To achieve the target, SIRI plans to increase the number of new projectlaunches from 11projects worth Bt22.1bn last year to 21projects worth Bt50.4bn this year,comprising 7single-detached house projects worth Bt13.7bn, 3townhouse projects worth Bt1.7bnand 11condo projects worth Bt35.1bn including 6condo projects developed by its JV with BTSworth Bt22bn. In our view, the targets looks challenging in the face of the current overall economicenvironment and due to its greater focus on new condo launches against the current backdrop ofstill-weak condo market conditions. In SDH/TH market, SIRI would focus largely on high-end market.The low-end market would account for only 13% of new project launches with 41% for mid-endmarket and 46% for high-end market. The new condo launches would also focus on high-endmarket in prime locations like Thonglor, Sukhumvit and Wirless Road. All these have led SIRI to setquite ambitious targets for FY16. However, we take a cautious view on its targets. We assume FY16SDH/TH presales will rise only 5% y-y, and condo presales will come in at Bt19bn in FY16based onassumption of a 40% average take-up rate for its newly launched condo projects, translating intopresales of Bt14bn with the rest Bt5bn from sales of existing condo inventories. In addition, SIRI hasalso guided for FY16revenue of Bt35bn, which would also be quite a challenging target to achieveas it currently has a backlog of a mere Bt11.4bn to be booked as revenue in FY16, covering only 33%of its full-year forecast. To meet the target, the rest should come from sales of SDH/TH projectsduring the year, sales of existing condo inventories at around Bt7bn and sales from 2-3new prebuiltcondo projects which would be ready for transfer this year. One of the pre-built condo projectswill be a high-end, luxury condo project on Wireless Road under the name ’98Wireless’ worthBt8bn with current bookings from VIP clients now topping Bt2.5bn while the other two pre-builtcondo projects will tap the mid-end segment worth Bt3bn. Overall we see its FY16targets as quitechallenging, in our view.

　　Declining profit outlook for FY16

　　We cut our FY16profit outlook for SIRI by 8% but we raise our FY15profit forecast for SIRI by 15%to factor in expectations that 4QFY15revenue would come in higher than our earlier forecast ofBt33bn at Bt35bn, which would in turn cause FY15revenue to exceed our previous forecast andbacklog carried forward into FY16to be smaller than previously thought. In our new forecast, weexpect SIRI to report an 11% y-y rise in FY15core profit on expectations of a 30% y-y growth in fullyearrevenue, which would be strong enough to offset a sharp margin contraction to 29% from 33%and a loss contribution from its JV with BTS. For FY16, we see an 11% y-y drop in core profit giventhat there would be a backlog of only Bt11bn carried forward into FY16and we expect only a 10%y-y growth in FY16SDH/TH presales, well below management’s guidance of 34% and our forecastfor sales of existing condo inventories is also lower than the company’s target. Our forecastassumes (i) FY16revenue will be down 7% y-y against management’s flat revenue guidance, (ii)margins will be flat and (iii) loss from JV with BTS will double to Bt500mn from Bt230mn a yearearlier.

　　Rating cut to ‘NEUTRAL’ with Bt1.50/share target price

　　Following the above earnings cut, we slash our target price for SIRI to Bt1.50/share from Bt1.68/share. We also reduce our rating on SIRI to ‘NEUTRAL’ as the new target offers limited upside fromcurrent trading levels.