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SC Asset Corporation

Strong 2Q-4Q14 earnings recovery

SC Asset Corporation Plc (SC)

Investment thesis

A high-end demand recovery will drive SC's presales in 2Q14. It is time to accumulate the stock ahead of a strong 2Q-4Q14 earnings expansion (1Q14 was the nadir of the year). Stripping out the office space-for-rent business, SC's ResDev FY14 PER is only 6x. A sharp price correction is unlikely, as the stock trades at its YE14 BV. Our TRADING BUY rating stands with an SOTP-derived target price of Bt3.70 (a residential business PER target of 8x and Bt1.4/share of rental market value).

Low-rise sales to post recovery for 2Q14

Low-rise bookings in April 2014 were Bt750m following an extremely weak 1Q14 average of Bt340m/month-, due to the political chaos and an absence of launches. In April, SC launched Boulevard Tuscany Cha Am-Hua Hin (Bt1.8bn) and plans another Bangkok Boulevard Pinklao-Petkasem project (Bt1.1bn) in June. Despite the coup last week, a marketing event called SC Day facilitated bookings of Bt520m (mainly low-rise), which was slightly above the firm's target of Bt500m. Thus, low-rise presales of Bt2.3bn are expected for 2Q14, up by 37% YoY and 123% QoQ. We anticipate low-single digit low-rise sales growth for 1H14.

Clear 2Q-4Q14 revenue visibility

SC will post strong earnings growth (both YoY and QoQ) for 2Q-4Q14. We expect residential revenue to jump from Bt1.3bn in 1Q14 to Bt2.2bn in 2Q14, to Bt3bn in 3Q14 and to a record of Bt4.4bn in 4Q14. SC had a Bt4.7bn presales backlog at end-March to transfer in 2Q14 onward. In 2Q14, it will start transferring three sizeable condos—The Crest Santora Hua Hin (Bt1.7bn; 46% booked), Centric Tiwanon Station (Bt2.7bn; 97% booked) and Centric Sathorn Saint Louis (Bt1.8bn; 92% booked).

FY14 business plan

Management reaffirms an FY14 top-line target of Bt12bn (up 20% YoY), of which 30% is to be generated in 1H14 and 70% in 2H14. The launch plan is six low-rise projects and one luxury condo with a total value of B10.6bn. The FY14 presales target is Bt12bn (down from a record high of Bt14bn in FY13). Bookings will peak in 4Q14 when SC launches a condo at Saladaeng priced at Bt250K/sq.m.

Scope for upside to our margin assumptions

The firm intends to deliver fatter margins in FY14. SC guides that the GMs for three sizeable condos to transfer this year will be 35% (low-rise GM is typically 33-34%). Management targets a fatter YoY GM for FY14 and a lower SG&A/revenue ratio of below 20%. That suggests scope for upside to our margin assumptions—for FY14, we assume flattish residential GM of 33% and a 21percent SG&A/sales ratio (22.5% in FY13).




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