SC Global sold 16 units from its Singapore projects in 2011

Target price of $1.05

Quarterly loss, $25m write-down on Ardmore Park. SC Global reported a net loss of $18.6m for 4Q11, primarily due to a $25m write-down on its Ardmore Park project, which is currently under construction. Excluding the write-down, net profit for 4Q11 was $4.6m, below our expectation as operating expenses were higher owing to higher sales and promotion expenses as well as higher service charges for its completed inventory. Full-year FY11 revenue was $769.1m and net profit was $132.2m. We maintain our Hold recommendation.

Sales remained slow. The luxury segment has seen very little sales since the introduction of the 10% Additional Buyer’s Stamp Duty (ABSD) for foreigner purchases in December last year. The only project that has bucked the trend is The Scotts Tower by Far East Organization, where up to 25 units were sold after the ABSD took effect, at a median price of $3,300 psf. In 4Q11, SC Global sold only a unit from its landbank in Singapore, although that unit at The Marq on Paterson Hill achieved a record price of $6,841 psf. There were no sales last month.

More finished units on hand. With the residential component of Martin No. 38 obtaining TOP in November last year, SC Global has almost fully recognised its outstanding orderbook of pre-sold units, with the exception of Seven Palms, which we estimate has less than $10m in after-tax profits from the 10 units sold. Seven Palms is expected to complete construction by year-end. Earnings going forward will be underpinned by any new sales from its completed projects, The Marq on Paterson Hill, Hilltops and Martin No. 38, with a total of 337 units. Pre-sales in Ardmore Park have not commenced.

Maintain Hold. We maintain our Hold call with an unchanged target price of $1.05, based on a 70% discount to its RNAV of $3.49. SC Global has proposed a final dividend of 2 cents per share, which translates to a yield of 1.8%. We will revisit our assumptions only when sales in the luxury segment start to pick up.

Target Price S$1.00


How do we view this?
We believe a combination of factors resulted in the below expectations 4Q11 results:
1) completed units of Martin No 38, which obtained TOP in late 4Q11, had yet to be handed over to owners, thus sales only recognizable in 1H12,
2) Lower contribution from AVJennings in 2011,
3) Impairment charge of $25mn. Going forward, SC Global will have fewer buffers to cushion the slow sales progress as most of the projects in Singapore are completed. Its ability to convert inventories into cash is vital going forward.

Investment Actions?
Under the harsh policy pressures environment, especially the ABSD, we continue to see challenging times ahead for SC Global. We lower our RNAV estimates and ascribe a higher discount to RNAV of 65% to reflect the slow sales progress. Fair value is thus lowered from $1.50 to $1.00. Downgrade to Reduce. Any relaxations in government policy will serve as upside catalyst for the share price.

Fewer buffers from project progressive recognition SC Global sold 16 units from its Singapore projects in 2011, lower than the 20 units sold in the previous year. Although 4Q11 seen one unit sold from The Marq at a record price of $6,841psf, we believe the ABSD implemented last December will continue to depress its sales going forward. Having completed The Marq On Paterson Hill, Hilltop and Martin No. 38 in 2011, SC Global now has fewer buffers in its revenue recognition going forward. New sales progress becomes more important to keep the company profitable.

Lower 4Q11 results could be due to completed units pending hand over FY11 reported revenue and PATMI were 90% and 73% respectively of our estimates. Excluding the allowance for impairment of $25mn, reported PATMI would have been 86% of our estimates, still below expectations. We believe the lower 4Q11 results were due to Martin No 38 which obtained TOP towards the end of 4Q11, and many of the sold units had yet to be handed over to owner in the quarter. Thus part of the sales may be recognized in 1H12. Contributions from AVJennings were lower with PBT at $9.5mn in FY11 compared to $29.3mn in FY10. In the context of falling revenue while operating and finance costs remain high, we estimate profit will fall significantly in 2012 if no improvement is achieved in sales progress in its completed projects.

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