SC Asset Corporation

SC Asset Corporation Plc (SC)
Investment thesis
Our BUY call stands with an SOTP YE13 target price upgrade to Bt24 (from Bt21)—we re-rated our target housing PER to 9.5x from 9x and cut our discount rate for the rental business to 15% from 35%. Record high 3Q12 presales will outweigh a poor 3Q12 result. Thus, we view that any share price dips triggered by earnings weakness would present an pportunity to accumulate the stock. Over the long-term, we model for a good earnings CAGR of 29% for FY13-14. SC remains cheap—an implied residential business PER of just 7.3x.
Presales will beat all anticipation—strong growth ahead
FY12 presales will hit Bt11.6bn, up 43%; SC’s public target is only Bt10bn. Record high condo presales of Bt2.5bn in 3Q12 made for unprecedented total presales for the firm of Bt4.2bn for the quarter. That built its presales backlog to Bt8bn, half of which will transfer in FY14. SC aims for annual presales growth of 20% and revenue expansion of 10-20%. In our model, the firm will set new records for presales and revenue through FY13-14 (revenue growth of 20% per annum).
3Q12 earnings estimate cut …
We cut our 3Q12 estimate because marketing expenses related to presales exceeded our earlier assumption. We have slashed our 3Q12 net profit estimate to Bt143m, down by 51% YoY and 19% QoQ (reappraisal gains of Bt31m for 2Q12, but none for 3Q12). The poor 3Q12 number is due to a 34% YoY revenue contraction (no new condos started transferring) to Bt1.2bn and higher SG&A expenses brought about by five project launches during the quarter worth Bt7bn (two big condos and three low-rise developments).
…but SC will post a record profit for 4Q12
The firm will report unprecedented 4Q12 earnings, led by a surge in low-rise revenue (four low-rise projects worth Bt5bn will launch in 4Q12) and the transference of three condos (Centric Ratchada Suthisan, Bt890m, 100% booked; The Crest  Paholyothin 11, Bt880m, 78% booked; The Crest Sukhumvit 49, Bt460m, 43% booked).  Revenue is expected to hit a new record of Bt3.6bn (the last record was Bt2.7bn in 4Q10).
FY12 earnings cut, but negligible effect on FY13
We have revised down our FY12 profit forecast by 12% to fine-tune for greater SG&A expense assumptions for 2H12. Our FY12 core margin projection falls 2% to 14.5% (flat YoY; SC’s guidance is 14-15%). But our FY13 profit forecast remains Bt1.6bn, up 35% YoY. The aggressive 2012 low-rise launch schedule (12 projects worth Bt14bn) will enable hefty low-rise sales expansion in FY13. Condos are expected to contribute 20% of our FY13 revenue forecast, mainly transference of The Crest Sukhumvit 24 (Bt650m; 63% booked) and The Crest Hua Hin (Bt1.3bn; 30% booked).