Ticon Industrial Connection

Ticon Industrial Connection Plc (TICON)

Sale of assets in 4Q13. We estimate 4Q13 net profit at Bt1.1bn, up sharply from Bt86mn in 3Q13, backed by sale of assets, which will also be a near term share price catalyst. TICON will sell Bt5.5-6.0bn in assets to a new property fund by December 26. It plans to hold 20% in the fund.
RBW leases on track, but RBF revised down. YTD preleases of ready-built warehouses (RBW) cover 220K sqm, ~88% of our forecast. It says it will reach 250K sqm this year, in line with our forecast. Major clients are, by country Japan (44% of total RBW portfolio) and Thailand (13%), and by industry, logistics service providers (LSP, 41%) and auto parts (27%). However, YTD prelease of ready-built factories (RBF) is only 80K sqm, ~67% of our 2013F. The company itself expects to reach only 100K sqm this year, a bit below our forecast, due to a slowdown in the electronics industry and a temporary slowing in auto production due to cancelations of orders made under the first-car program. Major clients are Japan (56%) and Europe (18%), further divided into electronics/electrical (35%) and auto parts (33%).
D/E to drop. D/E ratio was a high 2.4x as of September 2013, barely under debenture covenant of 2.5x. We expect this to drop to 1.8x by end 2013 and 1.9x at end-2014. We note that exercise of TICON-W3 would raise Bt4bn and cut TICON’s D/E ratio to 1.3x, but we have not put TICON-W3 into our forecast as it is out of the money. Exercise price is Bt18.841 and it expires in January 2014. 
2014 outlook. For 2014, the company targets prelease growth of 20% to a total of 420K sqm, in line with our forecast. Of this, RBW is 300K sqm and RBF is 120K sqm. It will sell assets of Bt5.5-6.0bn, the same amount as this year. It thus expects its bottom line to grow YoY from higher rental income, higher management fees from the larger fund sizes of TFUND, TLOGIS and a new property fund set up in 4Q13, and rising dividend income from the funds. This makes our 2014 net profit forecast of Bt1.8bn, growth of 12.5% YoY, achievable.
Maintain BUY. TICON benefits from the investment cycle and expansion of modern trade. We expect earnings stable growth of 10-12% p.a. during 2013-2015. At the last close, the stock is trading at an undemanding PER of 9.4x 2013 and 8.4x 2014. With attractive dividend yield of 7.2% this year, it is a good dividend play. A good 4Q13F could be a share price catalyst in the near term. We reiterate BUY.