SC Asset Corporation

SC Asset Corporation Plc (SC)
 

In line with our model: SC reported a core profit of Bt177m for 1Q12, down 40% YoY but up 10% QoQ. The result was in line with our estimate and the consensus. Net profit for 1Q12 jumped 36% QoQ (in 4Q11, the firm made a non-cash Bt31m negative fair value adjustment for a property investment).
Results highlights: The YoY earnings weakness was due to a 15% fall in housing revenue to Bt1.2bn (98% low-rise; condo income was sharply lower YoY—Centric Scene Ratchavipa transferred in 1Q11) and slimmer housing GM (down from an extremely high 37.8% in 1Q11 [heavy condo transference] to 33.6% in 1Q12). The QoQ core profit growth was led by higher operating margin (the SG&A/revenue ratio dropped from 25% in 4Q11 to 22% in 1Q12)—more than sufficient to offset the effect of a 1% fall in housing GM to 33.6%.
Net gearing inched up from 0.68x at YE11 to 0.75x at end-March.
Outlook: We expect SC’s 2Q12 earnings to slip YoY but rise QoQ. Low-rise projects will continue to dominate sales, 2Q-3Q12. The condo presales backlog will start to transfer in 4Q12—Centric Ratchada Suthisan (Bt900m; fully booked) and The Crest Phahol 11 (Bt900m; 50% booked). The leverage ratio will remain high until 4Q12, when SC will recognize a surge in condo transfers.
What’s changed? For the time being, we maintain our FY12 forecast unchanged. 1Q12 profit accounts for 13% of our full-year projection and the consensus. 
Recommendation: We maintain our BUY rating, premised on a cheap valuation. SC’s multiples are low—an FY12 PER of 6.9x versus an FY05-11 mean of 11.7x—the deepest discount to its mean in of any stock in the sector. Our YE12 target price is unchanged at Bt19, pegged to a PER of 9x (20% below its FY06-11 mean), and Bt5.8/share of rental asset value (a 20% discount to appraised value).