SC Asset Corporation

SC Asset Corporation Plc (SC)

Investment thesis: We arranged a visit for institutional fund managers to two SDH project sites of SC—Grand Bangkok Boulevard Ratchada-Ramindra and Bangkok Boulevard Ratchada-Ramindra 3 (sales price range of Bt8-20m/unit). Our guests were impressed at what they saw. We believe SC has scope for a re-rating from its current FY13 PER of 7.6x (the cheapest of the ResDev stocks we cover). It’s FY05-11 mean is 11.8x. Stripping out the value of the rental operation, its implied residential business’s PER would be only 5.9x. Our BUY rating stands with a YE13 target price of Bt21 (SOTP). We expect the firm to post record presales for 3Q12 in late Oct.
Aggressive 3Q-4Q12 launch schedule: We and the investors were impressed at the big usable areas and full functionality of SC’s SDH designs. The firm has an aggressive 2H12 launch plan for low-rise projects totaling Bt8.6bn (versus Bt2.7bn in 1H12)—five new low-rise projects (Bt3.1bn) in 3Q12 and another four (Bt5.5bn) in 4Q12. Thus, low-rise bookings will jump YoY and QoQ in the fourth-quarter.
Record backlog: We estimate SC’s end-Sept presales backlog at nearly Bt7bn, a new record (versus Bt5.1bn at end-June 2012). Most of the presales are condos, which will start transferring in 4Q12 through FY15 (16% of our FY13 revenue forecast and 38% of FY14 is secured by presales). QoQ presales growth is being driven by two condos—Centric Sathorn-Saint Louis (Bt1.7bn; 80% booked) and The Crest Sukhumvit 34 (Bt2.2bn; 60% booked).
2H12 to comprise two-thirds of FY12 profit: SC’s FY12 revenue target remains Bt8bn (90% housing sales and 10% rental income). The implication is that the 2H12 top-line will comprise two-thirds of full-year revenue. Presales secure 75% of our revenue forecast. 
Rising leverage, but no recap concerns: Some investors asked about the leverage outlook. Management guided that D/E ratio will rise in tandem with portfolio expansion (ongoing project value will exceed Bt20bn by YE12, up from Bt12bn at end-June). The D/E ratio is expected to hit 1.3x at end-Sept (1.1x at end-June; the sector mean is 1.4x)—below its debt covenant of 1.5x. Management said there aren’t any plans for a capital increase.