SC Asset Corporation Plc

SC Asset Corporation Plc (SC)

Investment thesis: SC currently trades at 8% below its BV/share (Bt13.40 versus a BV of Bt14.58/share end-March). Despite higher leverage, due to a heavy launch schedule, management claims there are no plans for a cash call. The stock trades at an FY12 PER of 6.6x versus an 11.8x FY05-11 mean—the deepest discount to its average of any stock in the sector. We maintain our BUY rating and a YE12 target price of Bt19, based on a sum-of-the-parts valuation—a housing PER of 9x (20% below its FY06-11 mean) and Bt5.8/share of rental asset value (a 20% discount to appraised value).
Double-digit YoY growth in 2Q12 presales: We expect SC to post 2Q12 presales of Bt2.5bn, up 10% YoY and flat QoQ—63% low-rise and 37% condos. Condos will drive YoY presales growth, due to the low base set by 2Q11 (only Bt170m in condo bookings). 2Q12 condo presales are likely to hit Bt900m—conservatively assuming a 30% take-up rate for Santo (Hua Hin; Bt1.3bn) and The Centric Sathorn 11 (Bt1.7bn). On a QoQ basis, the low-rise sales recovery is proven; management guides for a 20-30% QoQ jump in April-May 2012.
Back-loaded revenue in 4Q12: In 2Q12, we expect profit to decline YoY, but rise QoQ (driven by low-rise sales under a prebuilt model). In line with the industry trend, SC earnings will peak in 4Q12. Visibility is good, as a Bt2bn condo presales backlog will start to transfer in 4Q12—Centric Ratchada Suthisan (Bt900m; fully booked), The Crest Phahol 11 (Bt900m; 70% booked) and The Crest Sukhumvit 49 (Bt460m; 40% booked). The CFO guided that the GMs for the three condos are far above low-rise GMs. 
Record high presales target set at Bt10bn: The FY12 presales target of Bt10bn comprises 70% low-rise and 30% condo. SC plans to launch Bt16-17bn in new projects this year in the upper mid range to high-end segments (Bt6bn in launches in 1H12). Apart from the Hua Hin condo, SC will launch projects in other ex-Bangkok locations—Cha-am (SDH) and Pattaya (condo). The record launch and presales targets will push up the D/E ratio above 1.0x from 0.97x at end-March), but it will remain far below the internal ceiling of 1.5x.