SC Asset Corporation
Record 4Q12 profit; two share price catalysts just announcedSC Asset Corporation
Below our estimates
SC reported a record net profit of Bt590m for 4Q12, up by 353% YoY and 247% QoQ. 4Q12 core earnings also set a new high of Bt575m, up by 256% YoY and 265% QoQ. The result, however, was 15% below our estimate and the consensus, due to higher SG&A expenses than modeled.
Surprisingly, SC announced a stock dividend at a ratio of 8:1 (old: new) and a Bt0.162 cash DPS. XD on May 2; payment on May 17. It implies a 47% payout rate (we had assumed minimum payout of 40%). Management also announced a 5:1 stock split, which will cut its par value from Bt5/share to Bt1.
The impressive 4Q12 core earnings growth was due to housing revenue expansion. Housing sales hit a new high of Bt3.7bn (up by 164% YoY and 147% QoQ) and a fatter core margin (from 10.1% in 4Q11 and 9.3% in 3Q12 to 14.7% in 4Q12). Three condos—Centric Ratchada-Suthisan, The Crest Paholyothin 11, and The Crest Sukhumvit 49—started transferring in 4Q12. Average housing GM improved from 31.9% in 3Q12 to 33.0% in 4Q12. The SG&A/sales ratio plunged from 23.7% in 3Q12 to 15.3% in 4Q12, due to revenue expansion. Net gearing dipped from 1.01x at end-Sept to 0.98x at YE12.
SC will report strong YoY profit growth in 1Q13, driven by revenue expansion (a Bt500m condo backlog at YE12 to transfer in 1Q13). Both low-rise and condo income will increase YoY during the quarter (transferring the rest of The Crest Sukhumvit 49). But 1Q13 profit will drop QoQ, due to the high base set by 4Q12.
We have revised down our FY13 profit forecast by 4% to factor in higher SG&A expenses (a bigger portfolio means higher marketing expenses). Despite the cut, our FY12-15 core earnings CAGR projection is 30%. We will revisit our model to factor in the new shares from the stock dividend and the par split after the AGM on April 23.
SC's share price will react positively to the stock dividend and par-split announcement, we expect. Management is confident that the strong earnings growth outlook will mitigate the dilution effect (11percent from the stock dividend). SC's par split will boost trading liquidity. Note that when SIRI cut its par value from Bt4.80 to Bt1.07 on Oct 10, 2011, its mean daily trading volume jumped 149% (from 10m shares/day to 25m). SC trades at a very low FY13 PEG of 0.3x. We have re-rated our target PER to 13.8x (from 12.5x) to factor in the expected liquidity improvement. Our new YE13 target price is Bt36 (up from Bt34), based on a sum-of-the-parts valuation.