Industrial Estate

Industrial Estate

 

The government plans to increase the privileges to promoted industries is a positive move in our view. It will improve Thailand’s competiveness, raise FDI and with that, demand for industrial properties.  All listed developers will gain as all have properties in promoted areas.  Sector pick: AMATA  

 

Government moves. The cabinet recently approved the following plan: a) a 10-15 year tax holiday (up from 8 years plus 50% tax reduction for the following five years) for six “super clusters” - automotive, food processing, environmentally friendly petrochemical and chemicals, medical services, digital and electrical appliances & electronics & telecom equipment – in Nakhon Ratchasima, Pachin Buri, Chachoengsao, Chonburi, Rayong, Pathum Thani and Ayudhya. b) a 3-5 year tax holiday plus 50% tax reduction for the following five years to two regular clusters - agricultural processing and garments & textiles - in Chiang Mai and Phuket. 

 

These tax privileges look attractive and should help make Thailand more competitive within ASEAN. They should raise FDI, in turn raising demand for industrial properties. With properties located in promoted areas, all industrial property developers will gain.   

 

Land sales momentum weaker in 2Q15. Overall land sales were only 398 rai in 2Q15, -10% YoY and -39% QoQ on weak demand. Both AMATA and HEMRAJ cut their targets to less than 1,000 rai and 1,000 rai respectively. Accordingly, we cut our land sales forecast by 23% to 2,600 rai this year, still reflecting growth of 70% YoY. In 1H15 land sales were 1,053 rai, accounting for 41% of 2015F. AMATA and HEMRAJ had an equal market share of 34% in 1H15. On the performance side, AMATA turned around in 2Q15 to a net profit of Bt444mn from a net loss of Bt12mn in 2Q14 due to higher deed transfers and a one-time gain from sale of RBFs to AMATAR. HEMRAJ’s 2Q15 profit fell 21% YoY to Bt801mn on fewer deed transfers and lower income from Gheco-One.   

 

RBF: Demand remains weak, competition rising. According to CBRE, in 1H15 leased RBFs grew a mere 1.0% from end-2014 to 1.6mn sqm versus a rise in supply of 4.0% to 2.5mn sqm. This means occupancy rate remains low at 65% versus 67% at end-2014. With weak demand, TICON has halved its new lease contract target to 50K sqm this year and reports that it has been unable to raise rents. We are seeing sharper competition in the RBF market as developers expand their market coverage and try to grab share from competitors. For example, AMATA is developing larger units of >1,000-1,500sqm/unit, while TICON has downsized to 550 sqm from >1,000 sqm. 

 

WH: Shifting focus to build-to-suit. In 1H15 leased WH inched up only 2% from end-2014 to 1.8mn sqm, less than the 4% growth in supply to 2.4mn sqm. Occupancy rate is a low 74%, the lowest since 2006. Despite this, TICON’s and WHA’s new lease contracts were solid at 123K sqm and 66K sqm respectively in 1H15, on track to achieve their full year targets. Unlike RBF, WH rents can still be raised. Developers are now focusing more on larger build-to-suit WH. Asset yield on build-to-suit WH is about 400pbs lower than the standard WH, but the trade-off is a long-term contract and certain rent hike.   

 

Sector pick - AMATA. We like AMATA as one of the prime beneficiaries of the government’s new tax incentives plus the positive from listing subsidiaries Amata B. Grimm Power and Amata VN plus expansion in Vietnam and Myanmar.