SC Asset Corporation

SC Asset Corporation Plc

Investment thesis
SC’s YE13 presales backlog secures 44% of our FY14 residential revenue forecast (the highest proportion of secured revenue in its history). The firm ranks second in terms of FY14 profit growth of our ResDev coverage (24% versus a 6% coverage mean). Surprisingly, YTD low-rise presales have been sustained YoY, despite the political chaos. Our TRADING BUY rating stands with an SOTP YE14 target price of Bt3.70 (up from Bt3.50, as we now attach no discount to SC’s rental market value; we previously discounted it 20%)—a target housing PER of 8x and Bt1.4/share of rental asset value.
Conservative launch and presales targets for FY14
The FY14 launch schedule is worth Bt10.6bn—seven projects (72% low-rise, 28% condo), down 49% YoY—plans are subdued for both low-rise and condos. New low-rise project launch value dives 35% YoY to Bt7.6bn. This year, SC will launch only one condo (a high-end project in Soi Saladaeng in 4Q14; Bt3bn) against four condos in FY13 worth Bt9bn. The FY14 presales target is Bt12bn, down 11%. The firm guides for YoY presales contractions of 8% for low-rise and 16% for condos.
FY14 revenue growth to outperform the mean of our coverage
The FY14 top-line target is Bt12bn, up 20%. We forecast FY14 revenue growth of 19% (against an average of 7% for our coverage). Top-line expansion will be driven by a jump in condo revenue from Bt1.6bn in FY13 to Bt3.9bn in FY14. Chambers Ramintra started transferring in March (Bt600m; 72% booked), The Crest Santora Hua Hin starts transferring in May (Bt1.7bn; 44% booked), Centric Tiwanon Station in May (Bt2.7bn; 97% booked) and Centric Sathorn Saint Louis in June (Bt1.8bn; 92% booked).
Scope for margin upside
If GM were to prove fatter than we currently assume and/or the SG&A/revenue ratio lower than we expect, there would be scope for upside to our profitability ratios. Management guides for condo GM of at least 34% for FY14. We conservatively assume residential GM of 33.0% for this year, flat YoY. SC targets trimming the SG&A/revenue ratio from 22% in FY13 to 17-18% in FY14; we still assume 21% in our model.
New office building planned for FY17
The firm plans to build a new office building on Phaholyothin Road, (near BTS Sanampao) on land to be leased (32 years and six months) from SC Office Plaza Co Ltd, a related firm. If the deal is approved at the AGM on April 23, the building would increase SC’s office floor space for rent by about 14% (13,060sq.m). The construction cost is estimated at Bt850-900m. SC plans to open the building for rent in 2017. Assuming a 50% occupancy rate, it would contribute Bt50m in rental in FY17 (Bt890m in rental income in our FY16 forecast).