SC Asset Corporation

SC Asset Corporation Plc (SC)

In line with estimate
SC reported a net profit of Bt158m for 3Q12, down by 46% YoY and 11% QoQ—in line with our estimate. The core profit of Bt158m rose 8% QoQ, as in 2Q12 the firm set a Bt31m gain on reappraised property assets.
Results highlights
The YoY core earnings weakness was due to a housing sales decline of 19% YoY, a 0.7% slimmer housing GM and an 8.4% surge in the SG&A/sales ratio to 23.7% (SC launched five project during the quarter worth Bt7bn, which made for record presales). Note that in 3Q11 headline housing revenue was skewed up sharply because SC restated revenue recognition for Centric Scene Ratchavipa condo to the quarter. The QoQ core profit improvement was led by a 32% jump in housing sales to Bt1.5bn (mainly low-rise). Net gearing rose from 0.9x at end-June to 1.0x at end-Sept (in line with management guidance).
Outlook
SC will report unprecedented 4Q12 earnings, led by a surge in low-rise revenue (four low-rise projects worth Bt5bn will launch in 4Q12) and the transference of three condos (Centric Ratchada Suthisan, Bt890m, 100% booked; The Crest Paholyothin 11, Bt880m, 78% booked; The Crest Sukhumvit 49, Bt460m, 43% booked). Housing income is expected to hit a new record of Bt3.3bn (the last record was Bt2.7bn in 4Q10). 
What’s changed? 
Although 9M12 core profit represents only 43% of our FY12 forecast (40% of the consensus), we maintain our model unchanged because the top-line with surge during 4Q12 with the transference of condos.
Recommendation
SC trades at an implied residential business PER of just 8.0x. We maintain our BUY rating with a YE13 target price of Bt24, based on the sum-of-the-parts—a target housing PER of 9.5x and Bt6.3/share of rental value (a 15% discount to net asset value). The firm is a mid-cap in the midst of an accelerated business expansion phase. We expect SC to deliver record high presales and earnings for FY12, then to beat those numbers in FY13.