SC Asset Corporation

SC Asset Corporation Plc (SC)
Below all estimates
SC reported a net profit of Bt249m for 3Q13, up 64% YoY but down 12% QoQ. The result was 20% below our estimate and 11% short of the consensus, due to disappointing residential GM and higher-than-expected SG&A expenses.
Results highlights
The strong YoY profit growth was led by residential sales, which jumped 42% to Bt2.1bn (77% low-rise, the rest condo), fatter residential GM (from 31.9% in 3Q12 to 33.0% in 3Q13) and an SG&A/sales ratio fall of 2% to 21.7% (due to top-line expansion). Note that SC had very low residential GM in 3Q12 because of transference of the thin-GM Granada project (first phase). The QoQ earnings decline was driven by a 13% drop in sales (condo revenue slipped 9%). GM dipped by 50 bps to 33.0%. The SG&A/sales ratio remained high at 21.7%. The net gearing ratio was stable at 1.2x at end-Sept. 
Outlook
4Q13 earnings will be flat YoY; a high base was set by 4Q12 (record revenue of Bt3.7bn). No new condos will start transferring during the quarter. However, we expect a QoQ profit rise, driven by low-rise sales growth (both YoY and QoQ), enabled by an aggressive 2H13 launch schedule (seven low-rise projects worth a total of Bt9bn—73% of FY13 low-rise launches).
What’s changed? 
We have cut our core earnings forecasts by 15% for FY13 and 13% for FY14 to factor in the weak 9M13 results. Our SG&A/sales ratio assumption rises by 1.2% to 21.0% for FY13 and by 1.8% to 21.3% for FY14, tied to brand-building and marketing expenses to boost presales (from Bt8bn at YE12 to record of Bt11bn at end-Sept; expected to hit Bt12bn at YE13).  9M13 net profit represents 62% of our full-year forecast (57% of the street).
Recommendation
Earnings projection downgrades will impact on the share price in the short-term, presenting opportunities to accumulate SC. Despite the forecast cuts, we expect good profit growth of 15% in FY13 and 24% in FY14. Our model indicates that SC will achieve FY14 revenue expansion of 24% to Bt12bn, led by doubled condo transference. The firm has a Bt3.6bn condo presales backlog to transfer in next year—Chambers Ramintra in 1Q14, The Crest Santora Hua Hin in 1Q14, Centric Tiwanon Station in 2Q14, and Centric Sathorn Saint Louis in 2Q14. 
Our YE14 target price declines to Bt4.40 from Bt5, due to our forecast downgrades, still pegged to an SOTP valuation—a target PER of 9x and Bt1.2/share of rental asset value (a 10% discount to the market price). Our TRADING BUY rating stands.