SC Asset Corporation

SC Asset Corporation Plc (SC)
Investment thesis: SC is the cheapest stock under our Residential Developer coverage. It trades at an FY12 PER of 7.0x, or 41% below its FY06-11 mean of 11.8x and slightly lower than its end-March BVS of Bt14.58. A re-rating is deserved—ROE will rise from 11.9% in FY11 to 13.5% in FY12. SC will deliver record presales of Bt10bn and revenue of Bt8bn in FY12. We maintain our BUY rating with 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).
FY12 quarterly presales will balance: The firm should sustain quarterly presales of about Bt2.5bn in 1Q12 through 4Q12 (YoY growth every quarter). Condo bookings will comprise 44% of 1H12 bookings, then low-rise will make up 70% in 2H12. Weakish YoY revenue in 1Q-3Q12 will be followed by hefty YoY top-line expansion of about 80% in 4Q12, led by recognition from three condos—Centric Ratchada Suthisan, The Crest Pahol 11 and The Crest Sukhumvit 49.
Targets Bt15bn in presales in FY15: SC aims to sustain presales expansion from Bt10bn this year to Bt15bn in FY15, a 15% CAGR. The firm will maintain focus on the mid range to the high-end segments. It will also expand upcountry to build resort homes in Hua Hin, Cha-am and Pattaya. Despite the provincial expansion plan (which may include condos), the D/E ratio will stay below 1.5x (it was 1.0x end-March 2012). 
Focus on profit growth: The firm has a housing GM floor of 32% (scope to rise to 33-35%). SC says it won’t cut prices in order to push sales. It will also manage SG&A expenses in order to deliver high NM. Excluding 4Q11 (when there was flooding damage), SC has operated at a high NM of 17% (the FY06-10 mean).
Aim to build new office#4: Management plans to build a new office building. SC already has three office buildings with a total space of 103,804 sq.m, but the occupancy rate of Shinawatra Tower III is likely to hit 80% within a few years from 66% currently. Office#4 is expected to be 17-20K sq.m; the investment cost is estimated at Bt1bn and rental income is expected to contribute 10% of the top-line.