SC Asset Corporation

SC Asset Corporation

Investment thesis
Despite its 35% price rally over the past two months, we think SC has further to run. It will deliver record high presales and earnings in FY13, outperforming the ResDev sector. We have increased our YE13 target price to Bt29 from Bt24 by re-rating our housing PER peg to 11.5x (equal to our targeted sectoral mean) plus Bt7.3/share of net rental market value. We model for an FY13-14 profit CAGR of 30%. In the short-term, we expect record revenue and earnings in 4Q12 (SC’s last record was in 4Q10). The stock trades at an FY13 PER of 9.1x for its residential business and PEG of only 0.3x (the sector mean is 0.8x). BUY!
Bt14bn in presales and Bt10bn in revenue in FY13
SC will post unprecedented presales of Bt14bn (up 20%) for FY13 and total revenue of Bt10bn (up 25%—Bt9.2bn in housing sales and Bt853m in rental income). Housing revenue growth next year will be strong at 28%, due to the low FY12 base set of only Bt7.2bn (80% low-rise, the rest condo). Low-rise sales (77% of FY13 revenue) are forecast to jump by 23% to Bt7bn, enabled by a bigger portfolio of projects (Bt7.6bn in low-rise launches in 4Q12 and Bt8.5bn available for sale at end-Sept).
To outperform the ResDev sector
The firm is at the early stage of an accelerated growth phase. Launches will increase from Bt16.8bn in FY12 to Bt20bn for FY13—new condos and diverse locations for new low-rise projects. Thus, SC will post FY13 presales growth of at least 20% (against 17% for the sector). Besides, its total revenue growth will outperform the sector next year—25% versus 17%. For FY14, we model for SC top-line expansion of 29% against only 12% for the sector. 
Scope for earnings upside in FY14
Low-rise sales jumped from Bt330m/week in 9M12 to Bt540m/week in Oct-Nov making for record low-rise sales in FY12 (Bt5.8bn). Thus,there would be scope for upside to our FY14 earnings model if low-rise sales were to exceed our current expectations (we conservatively assume only 12% low-rise revenue growth for FY14). Note that in FY14, two sizable condos are due to start transferring (90% booked)—Centric Tiwanon (Bt2.6bn) and Sathorn 11 (Bt1.7bn).
Considering a fourth office building
Management intends to build a Shinawatra Tower IV (central location—near a BTS station), as Shinawatra Tower III’s occupancy rate hit 70% recently (60% last year). The new building would increase its office floor space for rent by about 20% (17,000-20,000 sq.m.). We haven’t factored the possible new building into our model. The investment cost would be only Bt700m-1bn. Management reaffirmed that the D/E ratio has already peaked at 1.3x at end-Sept 2012. Rental income will account for about 10% of total revenue in FY12 and 9% in FY13.