Rojana Industrial Park

Rojana Industrial Park Plc (ROJNA)
 

Investment thesis: We have upgraded our ROJNA rating to BUY from HOLD and raised our YE12 target price to Bt10.50 from Bt6.60 following 60% and 55% respective upgrades to our FY12-13 earnings forecasts. The firm’s story is now very different to that of a few months ago. Not only will it post a V-shaped profit recovery in 1Q12, but a broad bottom-line uptrend is expected to prevail for at least the next two years.
Back in the game: After being swamped by the flooding last year, ROJNA has endeavored to catch up with its peers (AMATA and HEMRAJ) in terms of land sales by developing a new industrial park on the Eastern Seaboard, where demand for land is very strong. The firm is likely to seal a big-ticket deal for nearly 600 rai at the new park soon. As such, ROJNA has raised its FY12 land sales target to 1,000 rai from 400 rai. Note that the company sold 100 rai at its Ayudhya park in 1Q12.
Moderate margin for the new park: Although the cost of 528 rai at its recently acquired Pluakdaeng Industrial Park (PIP) is quite high, the land cost of the 1,500-rai plot abutting PIP should be cheap enough to bring down the average cost of the new park and make the project cost-competitive. Management guided for an average gross margin of 35% for the total 2,000-rai land plot at the new park, which is quite good in our view. Note that the mean GM of HEMRAJ’s estates nearby PIP is 40%.
Looking for more locations, including Dawei: Besides PIP, ROJNA is looking for another location to develop a new industrial park in Thailand, and may join hands with ITD to develop an industrial estate in Dawei, Myanmar. The planned parks will build value.
Earnings outlook now better than previously assumed: Although ROJNA’s power plants will not start to ramp up run rates until 2H12, the impact on the bottom-line will be negligible, as all the income losses are covered by business interruption (BI) insurance. Besides, the booking of a BI payout for 1.5 months lost in 4Q11 to the 1Q12 income statement will boost earnings for the quarter. Moreover, ROJNA expects to transfer and book the 700-rai backlog carried over from last year as revenue in FY12, while all 1,000 rai to be sold this year and half of a 3.5bn condo in China (phase 2) should recognized as income in FY13.