PIK Group - 2021 Sales Guidance Reiterated

PIK Group posted its 3Q21 operating results on Monday and held a conference call to discuss them yesterday. While the results were only okay given the worsened backdrop for the sector, the company reiterated its 2021 sales guidance and even saw some upside risk. > While the 3Q21 operating results showed a slowdown in y-o-y sales growth in monetary terms (to 19% from 89% in 2Q21), new contract sales were up 2% Q-o-Q (and 6% in m2 terms) despite higher mortgage rates and less generous terms for the state mortgage subsidy program. However, the average selling price was down 4% Q-o-Q to R174k/m2, with the average Moscow price down 8% Q-o-Q. > Despite the slowdown, the company is comfortable with its guidance of 25% sales growth in monetary terms this year and even sees upside risk given how strong demand for housing remains. We expect even higher growth, as we initially felt the guidance was not all that aggressive and sales were up 41% y-o-y in 9m21. We use an assumption of 35% y-o-y sales growth for the full year in our model. > The 2021 revenue guidance for the prop-tech segment of R24 bln (an eight-fold y-o-y increase) was reiterated as well. > Sales in Moscow Region fell 14% y-o-y and 15% Q-o-Q in monetary terms due to a lack of new projects, but stronger sales in Moscow (+30% y-o-y), St Petersburg (+59%) and other regions (+25%) fully offset that decline. The company expects a partial recovery of sales volumes in Moscow Region in 4Q21, as new projects will be launched in the quarter. > According to the management, the Q-o-Q drop in the average selling price was driven by both the project mix and discounts from the company aimed at keeping sales growing in the tougher conditions. However, the company does not plan to sacrifice much in the way of its margins. In fact, it would prefer lower sales at various projects to this, as the lower sales could be fully offset by new project launches and regional expansion. Overall, PIK does not expect much pressure on housing prices and sees them staying close to the 3Q21 levels. In our model for the market, we conservatively forecast that housing prices in core markets will drop 7-8% from the late-June peak by the year-end. > We are still comfortable with our key financial forecasts for this year after seeing the 3Q21 trading update and hearing what the management had to say about the outlook for the 4Q21 and full-year results. However, we have incorporated the recent SPO into our model. We reiterate our target price of R1,530/share, as well as our HOLD rating on the stock, which reflects the limited upside from the current levels. PIK Group is trading at a 6.7 2021E EV/EBITDA and 9.2 P/E, which are near the five-year averages.