SC Asset Corporation PLC Maintain positive outlook
Action and recommendation
► The overall tone of yesterday’s meeting was positive with management saying it expects housing demand in the mid-to-high segment to remain solid. SC projects revenue growth of 20% YoY in 2014, due mainly to its solid backlog on hand, while setting a conservative pre-sales target of Bt12.0bn, down 11.3% YoY. We retain our positive view on SC and maintain our Outperform rating with a target price of Bt3.80. SC is currently trading at a PER of 8.2X on 2014E, vs its 5-year mean of 12.0X. Our fair price implies a 2014 PER of 9.7X. We like SC for its conservative approach to business and strong earnings growth outlook.
Key investment points
► Still optimistic on property market but cautious on the short term. SC remains optimistic on the housing market particularly in the mid-to-high end segment, which is its main customer base. Key support factors are:
1) positive signs for the global economy; 2) lower policy interest rate of 2.0%; and 3) robust real demand for landed property. However, SC sees relatively weak market sentiment in 1Q14 with management guidance for YTD presales behind budget by
about 7-8% mainly due to the political uncertainty and no new condo launches in the quarter. As a result, SC set a conservative pre-sales target for 2014 at Bt12.0bn, down 11.3% YoY, of which Bt6.0-7.0bn should come from landed properties and around Bt5.0bn from condos.
► Expect strong growth on revenue. SC expects revenue growth of 20% in 2014, or about Bt12.0bn. Despite the current unfavorable environment, SC is confident that its revenue target is achievable supported by its strong backlog on hand and marketing events for completed projects, which are expected to be rolled out in 4Q14. At end-2013, SC had a backlog of Bt12.0bn, of which Bt11.9bn was from condos and Bt150mn was from low-rises. Of the total backlog amount, about Bt5.2bn will be realized in 2014, Bt3.0bn in 2015 and the rest in 2016. This means 43% and 22% of our 2014-15 revenue projections are secured. In addition, SC plans to launch 7 new projects in 2014 (vs. 12 projects in 2013) with a total value of Bt10.6bn, down 49% YoY. This guidance is in line with our forecast. We reaffirm our 2014 earnings forecast of Bt1.4bn, up 33.4%YoY
► Rejection rate is under control. SC’s management disclosed that its rejection rate was 8% in 2013. While this represents a slight increase, it is still under control, thanks to the real demand from its quality customers, who are mostly in the mid-to-high end segment. So far, SC said it has seen minimal impact from politics on its operations.
► New office building to be operational by 2017. SC revealed that total occupancy rate in the office market in 2013 hit its highest level since 2007 at 90.4%, indicating that demand for office space is picking up. As such, SC believes this is a good time to expand its office building portfolio. It plans to build a new office building on Phaholyothin road (next to Shinawatra Tower 1) with a total rentable area of 13,060 sqm. Construction will take 2.5 years and operations are expected to start in Jan 2017. However, this plan is subject to approval at an AGM meeting scheduled for 23 Apr 14 as the land will be leased from a related company.
Price catalysts
► Positive presales momentum, higher backlog on hand, and low risk of cancellation
Action and recommendation
► The overall tone of yesterday’s meeting was positive with management saying it expects housing demand in the mid-to-high segment to remain solid. SC projects revenue growth of 20% YoY in 2014, due mainly to its solid backlog on hand, while setting a conservative pre-sales target of Bt12.0bn, down 11.3% YoY. We retain our positive view on SC and maintain our Outperform rating with a target price of Bt3.80. SC is currently trading at a PER of 8.2X on 2014E, vs its 5-year mean of 12.0X. Our fair price implies a 2014 PER of 9.7X. We like SC for its conservative approach to business and strong earnings growth outlook.
Key investment points
► Still optimistic on property market but cautious on the short term. SC remains optimistic on the housing market particularly in the mid-to-high end segment, which is its main customer base. Key support factors are:
1) positive signs for the global economy; 2) lower policy interest rate of 2.0%; and 3) robust real demand for landed property. However, SC sees relatively weak market sentiment in 1Q14 with management guidance for YTD presales behind budget by
about 7-8% mainly due to the political uncertainty and no new condo launches in the quarter. As a result, SC set a conservative pre-sales target for 2014 at Bt12.0bn, down 11.3% YoY, of which Bt6.0-7.0bn should come from landed properties and around Bt5.0bn from condos.
► Expect strong growth on revenue. SC expects revenue growth of 20% in 2014, or about Bt12.0bn. Despite the current unfavorable environment, SC is confident that its revenue target is achievable supported by its strong backlog on hand and marketing events for completed projects, which are expected to be rolled out in 4Q14. At end-2013, SC had a backlog of Bt12.0bn, of which Bt11.9bn was from condos and Bt150mn was from low-rises. Of the total backlog amount, about Bt5.2bn will be realized in 2014, Bt3.0bn in 2015 and the rest in 2016. This means 43% and 22% of our 2014-15 revenue projections are secured. In addition, SC plans to launch 7 new projects in 2014 (vs. 12 projects in 2013) with a total value of Bt10.6bn, down 49% YoY. This guidance is in line with our forecast. We reaffirm our 2014 earnings forecast of Bt1.4bn, up 33.4%YoY
► Rejection rate is under control. SC’s management disclosed that its rejection rate was 8% in 2013. While this represents a slight increase, it is still under control, thanks to the real demand from its quality customers, who are mostly in the mid-to-high end segment. So far, SC said it has seen minimal impact from politics on its operations.
► New office building to be operational by 2017. SC revealed that total occupancy rate in the office market in 2013 hit its highest level since 2007 at 90.4%, indicating that demand for office space is picking up. As such, SC believes this is a good time to expand its office building portfolio. It plans to build a new office building on Phaholyothin road (next to Shinawatra Tower 1) with a total rentable area of 13,060 sqm. Construction will take 2.5 years and operations are expected to start in Jan 2017. However, this plan is subject to approval at an AGM meeting scheduled for 23 Apr 14 as the land will be leased from a related company.
Price catalysts
► Positive presales momentum, higher backlog on hand, and low risk of cancellation
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