Industrial Estate

Industrial Estate   

 

The recent M&A between IE developers and RBF and WH developers has changed the landscape, tying land developers to factory and warehouse developers. This means AMATA now sees TICON and WHA as competitors and will no longer sell land to them, disadvantaging TICON. Prefer AMATA.  

Industry landscape changed. IE developers have traditionally focused on the larger market of land sales and treat direct competitors as peers, viewing the ready-built factory (RBF) and warehouse (WH) developers as business partners. WHA’s recent acquisition of HEMRAJ and ROJNA’s purchase of TICON have solidified their relationships and changed the industry landscape; AMATA has subsidiary Amata Summit Ready Built Co., Ltd. (ASRB, a RBF developer) to use instead. AMATA now sees TICON and WHA competitors and it will no longer sell land to either. In our view, TICON is most disadvantaged by the change in the industry as it has closed one door for land – AMATA - leaving it fewer sources. AMATA will grow its land sales through expanding ASRB to replace sales to TICON.  

Land sales recovery in 1Q15. Overall land sales were 655 rai in 1Q15, +213% YoY on the low base from last year’s political deadlock, and accounting for 50% of 2014’s land sales. Market shares: 28% HEMRAJ, 27% AMATA, 3% NNCL and 42% others. On the performance side, both AMATA and HEMRAJ reported weak 1Q15 results YoY and QoQ due to fewer deed transfers.   

Weak RBF and WH performance in 1Q15. According to CBRE, RBF demand slid 5% YoY and was flat QoQ at 1.6mn sqm, diverging from the supply growth of 15% YoY and 4% QoQ. This pulled down occupancy rate to 64% in 1Q15 from 77% in 1Q14 and 67% in 4Q14. WH was better, as demand and new supply grew at the same pace; occupancy rate was unchanged QoQ at 75%. Both TICON and WHA reported weak 1Q15 profit YoY and QoQ due to high interest burden and no asset sales.   

2015: demand recovery stands. We maintain our land sales forecast at 3,300 rai, doubling YoY on low base, driven by non-auto industries. RBF and WH demand will grow at a moderate 10%. More BoI approvals this year will create demand for industrial properties (IE land and RBF). We see a real recovery in auto production and production of Eco Car phase 2 as vital to driving IE land and RBF demand. Past anchor industries (electronics and electrical products) are in their sunset years and detract from the demand growth outlook. WH demand is also being driven by the growth of modern trade and consumer products, as they boost efficiency (and profit) via better logistics. 

Selling price and rents unlikely to go up. With an uncertain economic growth outlook and industrial climate, we do not expect much of a price increase for industrial land. And, with occupancy rates low, we do not expect much of a rise in rent for RBF and standard WH rentals. However, rents can be raised as usual for the build-to-suit WH, in line with contracts. This implies WHA will be able to raise rent for its WHs as usual, but for TICON this is unlikely.  

Sector pick - AMATA. We select AMATA on its recovery story and large land bank (about 10,000 rai). We look for a Bt500-800mn gain from RBF spin-off in 2Q15 as a near term catalyst. Medium term catalysts are potential listing of subsidiaries Amata B. Grimm Power and Amata VN and expansion in Vietnam and Myanmar.