PIK Group - 4Q21 Trading Update: Housing Prices Continued to Grow

PIK Group posted its 4Q21 operating results yesterday. The results missed our forecasts but exceeded the company's 2021 guidance. PIK confirmed its upbeat outlook for 2022 given the strong demand and the material increase in its backlog in 2021. We decreased our target price for PIK by 2% to R1,500/share, but we upgrade the stock to a BUY. The stock is down around 20% since our initiation in mid-September 2021 and looks more attractive at the current levels.> Below our expectations on sales volumes, above on selling prices. New contract sales grew 39% Q-o-Q to 843k m2 in 4Q21 (down 1% y-o-y). In monetary terms, they rose 48% Q-o-Q (and 19% y-o-y) to R156.3 bln. The company missed our m2 forecast for 4Q21 by 16%, but in ruble terms it only missed by 5% due to a higher than expected average selling price (13% above our forecast).> Selling prices up in all regions. The average selling price rose 6% Q-o-Q in Moscow, 7% in Moscow Region and 1-15% in other regions. This indicates that demand for apartments remains strong despite increased mortgage rates. The share of mortgage sales was still high at 75% in 4Q21 (versus 77% in 3Q21 and 76% in 2021).> PIK beats its 2021 guidance. PIK's sales in 2021 totaled R451 bln, up 32.5% y-o-y. While this was worse than we had expected (a 35% increase), it was above the company's guidance (an at least 25% increase). > Positive outlook for 2022 confirmed. PIK expects 2022 to be another strong year, with a 30% increase in sales in ruble terms (we model a 32% rise). The sales growth will be driven by the solid expansion of the backlog of PIK's own projects (+30% in 2H21), the sizable fee development backlog and still solid demand for apartments, which should keep housing prices from falling. The company expects prices to increase in line with or slightly faster than inflation in 2022, with a similar increase in construction material costs. > KVARTA performance. Sales of real estate in the secondary market through PIK's online KVARTA platform amounted to R21.1 bln in 2021, up sevenfold y-o-y but 12% below the company's guidance. In 2022, PIK expects the segment to grow at a comparable pace, which implies upside to our conservative assumption of a 1.5x increase.> Updated financial forecasts. We incorporated the 4Q21 trading update into our model, which lowered our target price 2% to R1,500/share. PIK Group is trading at an around 6.0 2022E EV/EBITDA and 8.0 P/E, 10-20% below the five-year averages. Our new target price implies upside of about 30% from the current levels. We upgrade the stock to a BUY.