SC Asset Corporation

Strong growth phase

SC Asset Corporation Plc (SC)

Investment thesis

We expect SC to post record 4Q12 income and earnings (to be announced by late Feb), which will beat consensus estimates. For FY13, management conservatively targets unprecedented presales of Bt15bn and revenue of Bt10bn—growth of 20%. The presales backlog, which should rise 30% YoY at YE13, will boost FY14-15 revenue visibility. ROE is estimated at 15.9percent for FY13, above SC's last strong ROE year of 15.7% in FY10. Our YE13 target price inches up to Bt34 (from Bt33) to factor in our earnings forecast upgrade, pegged to a housing PER of 12.5x (2SDs above its FY06-12 mean) and Bt8.4/share of net rental market value. SC's FY13 PEG is just 0.3x, half the 0.6x sector mean.

4Q12 transference will beat the street estimate by 8%

We expect 4Q12 revenue of Bt3.9bn (record home sales of Bt3.6bn, up by 158% YoY and 141%QoQ), which would be 9% above SC's target and 8% ahead of the consensus, due to better-than-expected low-rise sales and condo transference (Centric Ratchada-Suthisan and The Crest Paholyothin 11 started transferring in 4Q12). Thus, it will post a record core profit of Bt702m for the quarter, up 334% YoY and 345% QoQ.

Earnings expectations have increased slightly

We have revised up our core profit projections by 2percent for both FY12 and FY13 to factor in an upsized revenue estimate for FY12 of Bt8.3bn (we earlier modeled for Bt8bn). The presales backlog at YE12 secured 14% of our FY13 top-line forecast, 23% of FY14 and 20% of FY15. The cost of inventory fell with the adoption of the prebuilt model for low-rise projects, while industry-wide low-rise supply remains subdued, so SC's housing GM has great scope to expand over the mid-term (management conservatively guides for flat YoY GM in FY13). Quarter-by-quarter bottom-line volatility should ease this year (our 4Q12 profit estimate comprises 58% of our full-year projection).

Impressive low-rise growth

Low-rise sales jumped from Bt380m/month in 1H12 to Bt550m/month in 3Q12 and Bt650m in 4Q12. Assuming that 4Q12 sales speed is more-or-less sustained through FY13, SC would post low-rise sales of Bt7.8bn, above its target of Bt7.5bn (up 28% YoY). FY13 low-rise sales expansion will be enabled by a 26% YoY jump in low-rise launches to Bt14.3bn.

Record presales backlog of Bt10bn by YE13—up 30% YoY

SC targets expanding its presales backlog from Bt7bn at YE12 to Bt10bn at YE13, driven by four condo launches this year with a total value of Bt7.7bn—a new condo brand, The Chambers, will launch in Pattaya in 2Q13 and two condos will launch in Bangkok in 3Q13. We are confident that the Bt10bn backlog target is achievable, as it would require only a moderate mean take-up rate of 57% of FY13 condo launches.