SC Asset Corporation

SC Asset Corporation Plc (SC)

Investment thesis: We took a group of Thai fund managers to meet Mr Nuttaphong Kunakornwong, Deputy CEO (appointed on March 1, 2012). SC’s strategic aims remain moderate revenue growth of 10-15% annually and long-term profit margin sustainability. We forecast record FY12 presales and revenue of Bt10bn and Bt8bn, respectively. Our BUY call stands with an unchanged YE12 target price of Bt19, based on a sum-of-the-parts valuation.
SC currently trades at an FY12 PER of just 7.7x, deeply discounted to its FY05-11 average of 11.8x and the current sector mean of 12x. The firm has substantial hidden asset value—rental assets with a market value of Bt5.8bn, equal to 56% of its current market capitalization. Subtracting the rental assets’ net market value (Bt7.30/share), SC’s residential business’s implied PER would be only 5.7x.
Record 3Q12 presales ahead: Weak 2Q12 estimated presales of Bt2bn, down by 11% YoY and 20% QoQ, are behind us. We expect unprecedented 3Q12 bookings—nearly Bt3bn, up by 35% YoY and 48% QoQ. Note that SC didn’t launch any projects during 2Q12; the opening of presales for Vista Park Rama II, The Crest Sukhumvit 34 and Centric Sathorn 11, were rescheduled to July. But we estimate that 1H12 presales rose by 27% YoY (above the trend SC needs to achieve its FY12 presales growth target of 20%).
2Q12 profit the nadir of FY12; 4Q12 the best: We expect the firm to report poor 2Q12 core earnings of Bt153m, down by 53% YoY and 13% QoQ, But net profit is expected at Bt188m, flat QoQ, as we assume a Bt35m gain from asset reappraisals (rental assets are reappraised every six months). SC will post its best bottom-line of the year in 4Q12, boosted by the transference of two condos—Centric Ratchada-Suthisan (Bt890m; 100% booked) and The Crest Paholyothin 11 (Bt880m; 73% sold).
To build a new office tower: The firm plans to build Shinawatra Tower IV, which would increase its office floor space for rent rental by about 20%. Project IRR is set at 15%. Management hasn’t yet announced the location, but says it will be handy to a mass transit station. Mr Nuttaphong said rental income (mostly from office buildings) will comprise less than 10% of revenue.
Outlook
Record 3Q12 presales ahead: Weak estimated 2Q12 presales of Bt2bn, down by 11% YoY and 20% QoQ, are behind us. Note that SC didn’t launch any projects during 2Q12; the opening of presales for Vista Park Rama II, The Crest Sukhumvit 34 and Centric Sathorn 11 were rescheduled to July. But we estimate that 1H12 presales rose by 27% YoY to Bt4.5bn (above the trend SC needs to achieve its FY12 presales growth target of 20%). Looking forward, we expect unprecedented 3Q12 bookings—nearly Bt3bn, up by 35% YoY and 48% QoQ. Apart from a QoQ low-rise presales recovery, two condo launches in July—The Crest Sukhumvit 34 (Bt2.2bn) and Centric Sathorn 11 (Bt1.7bn)—will boost condo presales to around Bt1.5bn in 3Q12 (up by 360% YoY and 70% QoQ).
2Q12 profit the nadir of FY12; 4Q12 the best: We expect the firm to report weak 2Q12 core earnings of Bt153m, down by 53% YoY and 13% QoQ, But net profit is expected at Bt188m, flat QoQ, as we assume a Bt35m gain from asset reappraisals (rental assets are reappraised every six months). SC will post its best bottom-line of the year in 4Q12, boosted by the transference of two condos—Centric Ratchada-Suthisan (Bt890m; 100% booked) and The Crest Paholyothin 11 (Bt880m; 73% sold). Gross margin in 4Q12 should be boosted by condo GM, which is typically 35% versus low-rise GM of 32-33%.