SC Asset Corporation

SC Asset Corporation Plc (SC)

Below all estimates
SC reported a net profit of Bt324m for 4Q13, down 45% YoY but up 30% QoQ. The result was 30% below our estimate and 25% short of the consensus, due to disappointing residential GM of 2.1%. SC realized a Bt42m gain on the reappraised value of rental assets. 4Q13 core profit was Bt281m, down 50% YoY but up 13% QoQ. The firm announced a DPS of Bt0.12 for FY13, a 3.9% yield (XD on May 2; payment on May 21).
Results highlights
The YoY dive was due to a residential sales contraction of 18% to Bt3bn (no new condos transferred), residential GM squeeze from 33.0% in 4Q12 to 31.8% and a SG&A/sales ratio surge from 15.3% in 4Q12 to 22.0%. Note that three condos started transferring in 4Q12. Residential GM slumped because of the transference of the thin-GM Granada project (a high-end SDH). The QoQ earnings growth was due to a 42% jump in sales (mainly low-rise). GM dipped 1.2% QoQ. The SG&A/sales ratio was stable QoQ, as was the net gearing ratio, which was 1.2x at YE13. 
Outlook
SC should post a YoY and QoQ profit decline for 1Q14. Low-rise sales are expected to fall YoY, given that sales have dived YTD (note that SC uses the prebuilt model for low-rise projects). The condo revenue contribution to 1Q14 will be small—only Chambers Ramintra (Bt460m; 72% booked) will start transferring in March.
Quarterly and yearly profit growth should resume in 2Q14, as SC has three sizable condos to transfer—The Crest Santora Hua Hin (Bt1.7bn; 44% booked), The Centric Tiwanan (Bt2.7bn; 97% booked) and The Centric Sathorn St Louis (Bt1.8bn; 92% booked).
What’s changed? 
We have cut our FY14 profit forecast by 8% because we have reduced our net margin assumption by 0.8% to 10.9% (our residential GM assumption dropped from 34% to 33%). The FY14 top-line is projected at Bt11.9bn (up 19% YoY), in line with company guidance. The YE14 presales backlog of Bt12bn secures 44% of our FY14 revenue forecast (the highest proportion of secured revenue in SC’s history).
Recommendation
The share price will come under pressure, given anticipation of a poor 1Q14 profit and negative sentiment generated by the ongoing political chaos (Shinawatra family members and vehicles hold 60% of SC). A sharp price fall would present an opportunity to accumulate the stock—the firm has good revenue visibility for 2Q-4Q14. Our TRADING BUY rating stands with a lower YE14 target price of Bt3.50 (it was previously 3.70), which reflects our adjusted SOTP valuation—a target PER of 8x and Bt1.0/share of rental asset value (a 20% discount to the market price).