SC Asset Corporation

SC Asset Corporation Plc (SC)

Investment thesis: SC is our preferred mid-cap play in the Residential Developer sector because of its forward earnings growth profile and cheap PER. In FY12, its housing portfolio will double and presales will hit an all-time high (beating the firm’s target). Its FY12 PER is 7.4x versus a 11.8x sector mean and a deep discount to its FY05-11 average of 11.8x. Excluding the rental operation, SC’s residential business’s implied PER is only 6.5x. Our BUY rating stands with a YE12 target price of Bt19 (SOTP).

To beat FY12 pre-sales target: FY12 presales this year look set to exceed the firm’s target by 10%, due to strong condo bookings. We expect SC to achieve presales of Bt8.3bn for 9M12 (up 45% YoY), equal to 83% of its full-year target of Bt10bn. The FY12 housing revenue growth target of 10% (to Bt7.2bn) is 70% secured by current presales. We anticipate that 2H12 profit will comprise 70% of full-year earnings (the best quarter of the year will be 4Q12). 

Record presales in 3Q12, led by condos: We are confident that SC will post Bt3.8bn in presales for 3Q12 (condo:low-rise = 60:40), up by 74% YoY and 90% QoQ and a new record. Presales were led by condo launches in July—Centric Sathorn-Saint Louis (Bt1.7bn; 70% booked) and The Crest Sukhumvit 34 (Bt2.2bn; 40% booked). The two projects secure revenue for FY14-15.
 

Strong low-rise performances in 4Q12: SC’s low-rise bookings continue to recover from the 4Q11 flooding (presales of Bt400m per month in 1H12 versus Bt500m per month recently). We expect low-rise sales speed to resume a pre-flooding level in 4Q12 (monthly bookings of Bt650m are expected), driven by four SDH launches (4Q12 low-rise starts worth Bt5.9bn versus Bt2.7bn in 1Q12, none in 2Q12 and Bt3bn in 3Q12).

Housing portfolio to double; no recap concerns: Units available for sale will jump from Bt11.7bn at end-June to Bt25bn at YE12 (70% low-rise, 30% condo) boosted by Bt13bn in project launches in 2H12. Despite the aggressive launch schedule, there is no recap risk, in our view. The D/E ratio is expected to peak at 1.3x at end-Sept, up from 1.1x at end-June, but below the debt covenant of 1.5x. The net gearing ratio will be 1x.