Industrial Estate

Industrial Estate

Mixed performances in 2Q13

Maintain bearish view on land sales this year, preferring rental factories
and warehouses

Old BoI rules in effect through 2014, new ones in effect early 2015
Top pick: TICON, as a defensive stock

Weak land sales momentum in 1Q13. Total IE land sales in 1Q13 were very weak,
with AMATA seeing only 42 rai, far below its target of 3,000 rai, and HEMRAJ 420 rai,
achieving 23% of its 1,800 rai full year target. Though the market acknowledges the
volatility of land sales on a QoQ basis, it is concerned that developers will miss their full
year targets. This counters the high number of BoI applications (+26% YoY to 747) and
investment value (+80% to Bt510bn) in 4Q13 and the BoI’s recent lift in its full year
target to Bt1trn from Bt700bn.
2Q13 outlook mixed. We look for income to grow QoQ for TICON and WHA in line
with rising occupied areas. AMATA’s land sales will grow off a low base, while earnings
outlook depends on deed transfers, on which there is no guidance yet. However, there
will be some stimulus lying in the listing of Amata VN on Thailand’s SET and an
infrastructure fund IPO for Amata B.Grimm. HEMRAJ will perform poorly in 2Q13 due to
the Gheco-One plant shutdown and FX loss.
Still expect low land sales view, prefer rental business. We maintain our bearish
view that land sales will weaken this year after last year’s record high – which could be
the end of a four-year upward cycle. On the other hand, we expect the strong demand
for ready-built factories (RBF) and warehouses to continue. Backing our stance:
a) Continued production relocation of Japanese investors, especially SME supply
chains as they follow their customers to allow for better logistics.
b) Strong demand arising for logistics centers to serve the rapidly growing modern
trade outlets and production capacity expansion. Manufacturers often prefer to
lease warehouses, instead of owning;
c) Upgrading to modern RBF and/or warehouses in preparation for AEC.
New BoI rule postponed to early 2015. Concerns about what the change in BoI rules
would do to the sector have been given a breather after the BoI decide to postpone
the effective date of its new rules to 2015. It stated the reason as giving it time to
review criteria and the type of projects that will no longer attract incentives, and time
for investors to adjust their investment plans to comply with the upcoming industrial
preference criteria. The BoI is considering changing its basis for privileges from zone to
prioritized investment promotion in 10 industries. Reducing basic tax incentives and
providing additional incentives based on project merits.
Top pick: TICON. With the picture brighter for rented properties, we switch our top
pick to TICON in recognition of its sustainable recurring income growth and good
dividend (6% yield for 2013). A plus is larger gain from sizable asset spin-off in late 3Q13
or 4Q13.