SC Asset Corporation

SC Asset Corporation Plc (SC)

 

Investment thesis

Despite its small size (the second lowest revenue ranking of our coverage), we expect SC to post YoY growth of 71% for presales in 1H15 and 50% YoY growth for core profit. There is scope for earnings upside to our model on the positive surprise in core margin. A short-term catalyst is impressive growth in both presales and earnings for 2Q15. Share price downside is limited as SC trades at YE15 BV. Our TRADING BUY rating stands, with an SOTP-derived target price of Bt4/share (a residential business PER target of 9x and Bt1/share of rental market value). 

Confidence in SC to achieve FY15 business plan 

We expect 1H15 presales of Bt5.9bn, or 46% of its FY15 target (Bt13bn, 52% growth YoY) and Bt5.2bn for residential revenue in 1H15, 40% of SC’s FY15 target (a record high of Bt13bn, up 10% YoY). New launches will more than double from Bt5.9bn for FY14 to Bt15bn for FY15 (four low rises with Bt6bn, three condos with Bt9bn). The Crest Sukhumvit 34 (Bt2.6bn of total value, 99% booked) starts transferring in 2Q15 and Centric Sea Pattaya (Bt2.9bn, 41% booked), in 4Q15. SC’s core margin is expected to improve YoY, but we conservatively assume a 20bps drop. 

Prompt delivery of both presales and earnings growth for 2Q15 

SC is expected to post Bt3.2bn presales for 2Q15 (66% low rises and 34% condo), up 40% YoY and 18% QoQ.  Low-rise presales are strong at 17% growth YoY and 45% QoQ. Condo presales will jump 136% YoY but drop 16% QoQ. Saladaeng One (Bt4.7bn of project value) had 17% booked at its unofficial launch in March and 30% was booked as of June. We anticipate core profit of Bt450m for 2Q15, a jump of 41% YoY and 181% QoQ. We expect residential sales to expand 31% YoY and 78% QoQ to Bt3.3bn on the start of the Sukhuvmit 34 project’s transfers. Core margin is expected to be 12.7% for 2Q15 (up 1.1% YoY and 5.0% QoQ).  

Low rises to be launched in 3Q15 and condos in 4Q15

Presales in 3Q15 would rise YoY but be flat QoQ, as all launches during the quarter are low rises. In 3Q15, SC will open three new low-rise projects valued in total at Bt4bn—two Life Bangkok Boulevard projects and the first of new brand PAVE at Rangsit Khlong 4 (upper-mid-range segment, unit price of Bt4-5m). SC will post strong presales growth YoY and QoQ again in 4Q15 on the back of two new condos—Chambers with Bt860m and a high-end condo brand at Sukhumvit 32 valued at Bt3.3bn.   

Sustainable growth plan through to FY19 with efficiency in focus 

For its five-year plan, SC targets FY19 total revenue of Bt20bn, implying 10% CAGR for FY15-19. Residential revenue is mainly from low-rise sales (70-75% of residential revenue) with sustainable condo revenue of around Bt5bn per year. Despite its moderate top-line growth target, management aims to improve efficiency and lower SG&A/sales expenses to fatten its net margin. The developer also aims to gradually expand its net margin from 12.4% in FY14 to 15.0% in FY19.