Amata Corporation

Amata Corporation Plc (AMATA)

2Q12 net profit is 30% below consensus and our estimates. Qoq weakness was mainly the result of low-margin land sales at Amata City. But as backlog and customer deposits remain strong, we are expecting material improvements in 2H, providing catalysts. As 1H12 forms just 32% of our FY12 forecast due to higher-than-expected interest expense, we are cutting FY12-14 EPS by 7-17% to incorporate this. Accordingly, our target price drops (still based on 14x CY13 P/E; 5-year average). Still, with an undented outlook and valuations at a 21% discount to NAV, maintain Outperform. 

Just lower-margin land sales
2Q12 profit growth of 14.3% yoy was led by: 1) both industrial-land sales (+45% yoy) and utility service income (+32% yoy); 2) gross-margin improvement to 49% (45% in 2Q11) on higher pricing power; and 3) a lower tax rate of 14% (16.3% in 2Q11). Qoq weakness was mainly the result
of lower gross margins of 49% for land sales (95% from Amata City, or 400 rai at ASPs of THB2m/rai; Amata Nakorn sold 10 rai at ASPs of THB4m/rai).

EPS cuts
Our EPS cuts reflect bigger interest expense on a higher gearing to finance its land purchases and project development. Real-estate development and land for future development rose 18.3% and 4.5% from the levels at end-2011. Even after our revisions, we expect FY12 EPS to grow 25% yoy and a more robust 79% in FY13. At end-1H12, AMATA had a backlog worth THB5.4bn (THB1.8bn to be transferred in 2H12 and the rest in FY13). Our FY12 and FY13 sales estimate has been 100% and 73% secured respectively.

Still preferred for industrial-estate exposure Stay invested for a promising outlook,backed by a growing number of customers, a solid backlog/customer advances, a supportive auto industry
and favourable BOI data.

Basis for EPS cuts
We cut our FY12-14 EPS by 7-17% mainly to incorporate higher interest expense. AMATA had geared up more to finance its land purchases and project development in 1H12, as evident in an 18.3% rise in its real-estate development and 4.5% increase in land for future development from end-2011 levels. AMATA’s rising land presales and sales cater to stronger demand from
production/factory expansion among existing customers and new customers (including those relocating from flood areas). We expect interest-bearing debt to equity to be 0.99x this year, before drifting down to 0.84x in FY13 on stronger cash inflows from bigger land sales and service income.
AMATA maintains its land presales target of 3,000 rai, with 1,080 rai already sold in 1H12. The momentum should be good going into 4Q12, going by the past two years when 4Q was the strongest. AMATA has acquired letters of intent (LOI) for land purchases amounting to 800 rai with 2-3 customers showing interest in buying big plots of 200-400 rai each.
End of the day, we still expect FY12 EPS to grow 25% yoy and an even more robust 79% in FY13. At end-1H12, AMATA had a backlog worth THB5.4bn (THB1.8bn to be transferred in 2H12 and THB3.6bn in FY13). Additionally,customer advances amounted to THB2.7bn in 2Q12, providing another source of revenue recognition in 2H12. Our FY12 sales estimate has been 100% secured by 1H12 sales and backlog while FY13 estimate has been 73% secured by backlog. Strong recovery in automotive industry post 4Q11 flood crisis and favourable BOI data also remains supportive.