Industrial Estate

Industrial Estate  

 

2015 was a limp year – though IE land sales recovered (+35%), they still achieved only half the 10-year average, and selling price was stagnant. This year will be better, with demand growing 25% to bring sales back to the 10-year average in 2018. WH is seeing good demand/supply dynamics with a rise in occupancy last year, but RBF moved in the opposite direction. This year we expect WH demand to rise 9% and RBF 24% off the low base.  

 

IE land sales recovered in 2015...  According to CBRE, industrial estate land sales grew 35% YoY to 2,121 rai but were still around half the 10-year average of 4,149 rai. This is in line with a rise of 11% YoY to Bt809.3bn for BoI-approved projects and a 20% increase in FDI inflow into the manufacturing sector. However, selling prices were largely flat with prices able to rise only in selective IEs where supply is cramped. The good news is that we see a rise in asking prices at IEs in Rayong, Chachoengsao, Prachinburi and Ayutthaya - the first rise for Ayutthaya since the flooding in late 2011. 

 

… and will continue rising in 2016. We expect IE land sales to grow 25% p.a. over next three years to 2,600 rai in 2016, 3,300 rai in 2017 to finally reach the 10-year average of 4,149 rai in 2018. In the near term, the auto sector will continue to fuel growth, particularly the continued production relocations from Japan and China. This latter is supported by confirmations from Toyota, Honda, Nissan and Isuzu that they will set up an automotive testing center in Thailand plus the recent investment by SAIC Motor-CP Co, which will draw in its supply chains. A bonus is government incentives to help expedite investment. 

 

Positive macro indicators. Externally, there are signs that world export growth has touched bottom and will move back up, backed by growing world GDP. Internally, the BoI has applications amounting to nearly Bt1trn waiting for approval. Auto production is back to growth, though slowly (2% in 2015 and 5% forecast for 2016), driven by export growth. For the longer view, a new investment cycle into the auto sector will be undergirded by newcomers, new demand after the expiration of the first-car scheme and investment into Phase 2 of the eco car project. Lastly, Thailand’s utilization rate is good at 63.9% and there are signs of improvement in leading indicators – the Manufacturing Production Index and capital goods imports. Continued improvement in these will usher in a new investment cycle, which will drive industrial property demand.   RBF and WH: According to CBRE, the demand/supply dynamics for WH are good, with cumulative supply up only 9% to 2.5mn sqm but demand up 20% to 2.1mn sqm, lifting occupancy rate to 82% in 2015 from 75% in 2014. Ready-built factories (RBF) did poorly. Though supply rose only 5% to 2.3mn sqm, demand shrank 4% pulling down occupancy rate to 69% in 2015 from 75% in 2014.  

 

Demand to grow slower. Based on guidance from TICON and WHA, aggregate new contracts for WH will grow 9% to 500K sqm this year, slowing from growth of 22% last year; new contracts for RBF will grow 24% to 50K sqm, slowing from 30% last year. A key concern for RBF is contract termination. 

 

Sector pick - AMATA. Given its good assets, AMATA is undervalued, trading at 1.0x 2015 PBV. The market is overlooking its valuable land bank in very strategic locations in Thailand and Vietnam. We value the stock on sum-of-the-parts at Bt21/share.