Amata Corporation

Amata Corporation Plc (AMATA)

Investment thesis: AMATA’s share price has moved sideways during the last three months, underperforming the SET by 7%, as land sales progress has been slow, particularly compared to HEMRAJ. However, at this current price level, the risk-return trade-off looks quite attractive, while expected land sales of at least 800 rai from now till year-end should build positive sentiment toward the stock. We maintain our BUY rating on AMATA with a YE13 target price of Bt20.20.
1,260 rai sold to date: The firm’s land sales have been disappointing—only 1,260 rai in the year-to-date. Even including 800 rai from customers submitting letters of intent (LOI) to buy land from AMATA by YE12, sales would comprise only 67% of the firm’s FY12 target of 3,000 rai. However, management remains confident that the firm will achieve the goal. In our view, it is too early to say whether it will or not. Anything could happen during the next 3-4 months. For example, by Sept 2011, AMATA had achieved only 50% of its FY11 target, but it eventually met that target with almost 800 rai sold in 4Q11. The question, thus, is how much downside or upside from the current price.
Limited downside if target is missed (tactical view): Our study of historical patterns shows that AMATA’s share price correlates closely with the consensus expectation for land sales (Figure 1). Our regression model (Figure 2), which has an R-square of 70%, suggests that the stock currently trades on expectations that it will sell only 1,650 rai this year. But, even under the worst-case scenario, AMATA should achieve land sales of 2,000 rai, thanks to LOIs for 800 rai. As such, if it were to miss its target, share price downside would be only limited. From a tactical perspective, we think the current price presents a good entry point.
An optimistic view if target miss: We quite like the scenario of AMATA selling 2,000 rai this year, as it would make room for further land sales growth in FY13, sustaining earnings growth momentum for the next two years. Conversely, if AMATA were to achieve its FY12 target of 3,000 rai, the scope for greater land sales next year would appear limited. In that case, land sales would peak this year and profit would peak in FY13. Such an earnings pattern may make AMATA unattractive for investors with mid-term return horizons.