SC Asset Corporation

SC Asset Corporation Plc (SC)

Investment thesis
Any share price weakness would present a good opportunity to accumulate the stock. A short-term catalyst would be record presales in 2Q13. A par-split from Bt5 to Bt1 (to be tabled at the AGM on April 23) would boost trading liquidity. We maintain our BUY rating with a YE13 target price of Bt36, pegged to a housing PER of 13.8x (2SDs above its FY06-12 mean) and Bt8.4/share of net rental market value. SC’s current FY13 PEG is only 0.3x, far below the 0.5x sector mean.
Likely to beat FY13 revenue target
Management targets record presales of Bt15bn (up 20%) for FY13 and total revenue of Bt10bn (up 20%). Low-rise sales (85% of FY13 revenue) will jump 26% YoY to Bt7.6bn, enabled by a bigger portfolio of projects (Bt14bn available for sale at YE12 plus launches worth Bt26.4bn in FY13). In our view, SC’s FY13 revenue target is too modest, as it implies low-rise sales of only Bt1.9bn/quarter; in 2H12 its low-rise sales were Bt2.1bn/quarter. The firm will deliver a YoY profit growth for every quarter in FY13 (the best profit of the year in 4Q13), we expect.
Pre-sales backlog expansion makes for long-term revenue visibility
The YE12 pre-sales backlog was a record of Bt7.7bn, which secures 14% of our FY13 revenue forecast, 23% of FY14 and 20% of FY15. SC targets expanding the pre-sales backlog to Bt10bn by YE13, led by condo launches this year valued at a total of Bt8bn. A new condo brand, The Chambers, will launch in March 2013 and the first project under the brand will realize revenue in 1Q14. Three new condos (Centric) secure revenue in FY15 onward. In 1Q14, three condos (two of which were launched in FY12) will make for a record profit for 1Q14—The Centric Tiwanon (Bt2.6bn), Santora Hua Hin, (Bt1.6bn) and The Chambers (Bt460m).
To hit 2Q13 record pre-sales
SC is likely to post all-time high pre-sales for 2Q13, led by condo launches and sustained strong low-rise bookings. The three condos will be in the mid to upper-mid range, valued at Bt7.5bn in total—Centric Sea Pattaya (Bt2.5bn), Centric Huay Khwang Station (Bt2.6bn), and Centric Aree Station (2.4bn). We conservatively assume a mean 40% take-up rate by end-June, which would make for 2Q13 condo presales of nearly Bt3bn (a record) and total 2Q13 presales of Bt4.5-4.8bn (also a record).
Looking for a new rental project
Rental income (three office buildings) is expected to comprise 8% of total revenue in FY13. Shinawatra Towers I and II are fully occupied. Shinawatra III had an 86% occupancy rate in Feb 2013, which is expected to rise to nearly 90% at YE13. Eventually, management plans to build a Shinawatra Tower IV near a mass transit station, which would boost its office space-for-rent by about 20%; project IRR is set at 15%.