SC Asset Corporation

SC Asset Corporation Plc (SC)

As a leading landed housing developer in the premium market with prudent expansion plans for less competitive segments, SC should be able to offer resilient earnings growth. Its recent diversification into the mid-to-upper-end condo market could add to growth.

We initiate coverage with anOutperform, expecting catalysts from stronger 2Q13 results and 2H13

presales. We have a target price of THB6.10, based on 12x CY14 P/E (1SD above its 6-year mean), with the premium to its historical mean reflecting its stronger branding,high-end SDH presence and incremental growth from condos and holiday homes.

An overlooked resilient premium player

SC has been consistently growing its presence in the premium housing market since its listing and has gained market share recently from major players like QH, LH and SIRI. It focuses on the resilient mid-to-high-end SDH/TH market with a recent diversification into condos (product mix: 80percent SDH/TH and 20% condos in 2012). Target customers are the middle class and high-net-worth buyers who are less sensitive to economic downturns.

Stable earnings growth Supported by its rising presales, expanding core SDH/TH sales, condo sales, a stronger backlog, sustainable high gross margins and rising occupancy rates for its office buildings, we anticipate earnings growth of above 27% p.a. over FY13-15. Hidden value in investment assets On top of its core housing business, value in SC’s three office buildings could be unlocked from potential launches of REITs/property funds in the future. The company is exploring options.

Attractive risk-reward trade-off Despite its resilience and established premium branding, SC has not been well rewarded by the market, in our view. Valuation is undemanding at 7.3x CY14 P/E vs. peer average’s 9.3x and 0.99x CY14 P/BV vs. peer average’s 1.85x. While its ownership by the family of the former PM Thaksin Shinawatra could somehow be considered additional risks, we believe such risks have been discounted.