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SC Asset Corporation

Key takeaways from local NDR

SC Asset Corporation Plc (SC)

Investment thesis

Last week, we brought local institutional investors to meet Mr Nuttapong Kunakornwong, CEO, and Mr.Attapol Siriddipuntawat, CFO. The managers reaffirmed an impressive earnings growth outlook for FY14—record top- and bottom-lines. SC lags its peers at a YE14 PBV of 1.1x against a 1.8x coverage mean. Our TRADING BUY rating stands with an SOTP-derived target price of Bt4 (a residential business PER target of 10x and Bt1/share of rental market value).

Revenue growth of 20percent for FY14

Management confirms 20% top-line expansion to a record of Bt12bn for FY14 (93percent from residential sales, 7percent from rental income). The driver is residential revenue growth of 21% (57% low-rise and 43% condo). The FY14 condo revenue target is a new high of Bt4.8bn, up 199% YoY, secured by presales (Bt4.9bn to transfer in May onward). Three sizable condos started transferring in 2Q14—The Crest Santora HuaHin, Centric Tiwanon and Centric Sathorn 11. SC expects a low-rise sales drop of 17% YoY to Bt6.4bn this year, due to weak sales in 1Q14. Low-rise sales normalized in April.

1Q14 profit was the nadir of the year. SC will report strong QoQ growth for 2Q-4Q14. The firm guides that one-third of its FY14 revenue target will be realized in 1H14, two thirds in 2H14. The seond-half profit is likely to rise by 70% YoY and 140% HoH.

Targets Bt20bn top-line in FY19

The CEO guides for revenue of Bt20bn in FY19, implying a 12% CAGR, FY14-19. SC will maintain its third place in the in upper-mid range to high-end segments. The firm will launch a new brand for the upper-mid range segment (unit prices of Bt4-5m) in FY15. It had a condo presales backlog of Bt12bn at end-March and plans to launch more high-rise projects in order to secure condo revenue of about Bt5bn per year. Low-rise sales normally grow at 5-10% per year.

To push NM to 14% over the long-term

NM dipped from 14.5% in FY12 to 10.7% in FY13, due to higher SG&A expenses tied to SC's effort to boost condo presales (the backlog rose from only Bt3bn at YE11 to Bt12bn at YE13). The firm aims to expand NM by at least 1% in FY14 and eventually back to 14%. The SG&A/sales ratio will fall this year, as launch value will dive 49% to Bt10.6bn.

New office will add 11% rental space capacity—to open in 2017

SC owns five office buildings with 109k sq.m of space; they are almost fully occupied. Rental revenue is set to rise from Bt829m in FY13 to Bt840m in FY14. Thus, SC is building a new tower with 12k sq.m of space (an 11% addition). It is slated to open in Jan 2017 and with an occupancy rate of 100% would generate about Bt100m in rental income.


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