SC Asset Corporation

SC Asset Corporation Plc (SC)

Investment thesis: We maintain our BUY call on SC, due to its cheap multiples. The stock trades at an FY12 PER of 6.2x versus an 11.7x FY05-11 mean—the deepest discount in the sector. We have increased our YE12 target price to Bt14.80 (from Bt12.80) by re-rating our target housing PER from 6x to 7x (still 1SD below its average). Our sum-of-the-parts valuation also includes Bt3.65/share of rental asset value (a 50% discount to appraised value). Management still targets record high revenue and presales in FY11-12. In the short-term, weak 4Q11 numbers would be in line with peers, but SC’s presales will outperform the sector (YoY growth for SC but a fall for the sector as a whole). 
4Q11 presales will not be bad (record high condo presales): Despite flooding in Bangkok, we expect SC to post YoY presales growth for 4Q11 (down slightly QoQ), led by record high condo presales. In Nov 2011, SC launched three condos with good responses—Bt1bn in presales (a 44% take-up rate of a launch value of Bt2.4bn)—The Crest Sukhumvit 24 (Bt650m), The Crest Sukhumvit 49 (Bt460m) and Centric Tiwanon (launched only A building worth Bt1.3bn—B building will launch in March 2012). Thus, 4Q11 condo presales should be about Bt1.6bn, up by 180% YoY and 380% QoQ.
Revenue target cut, but strong outlook: None of SC’s projects were damaged by flooding. However, low-rise presales will be poor in 4Q11, as 10 projects (of 25 available for sale) are located in the vicinity of inundated areas. Flood protection expenses were only Bt30m (to book in 4Q11). SC has cut its FY11 revenue target 7% to Bt7bn, but that would still be a record. The FY12 top-line target is Bt7.7bn. Presales are expected at Bt7-8bn in FY11 and Bt10bn in FY12, which would represent sequential new records.
Aggressive launch schedule for 2012: SC plans to launch Bt15-18bn in new projects next year, including four projects (Bt2.4bn) delayed from 4Q11 to 1Q12, due to flooding. Management is confident that the firm’s target clients (upper-mid to high-end segments) were little impacted by flooding. The FY12 presales target of Bt10bn breaks down to 70% low-rise and 30% condos. The net gearing ratio is expected to remain low at 0.5x at YE11 (a Bt2bn debenture is to be issued this month).