Amata Corporation

Amata Corporation Plc (AMATA)

We expect a good performance both YoY and QoQ in 2Q16, with 1H16 core profit growth of 12% YoY. AMATA’s exposure to the excellent outlook for the Vietnam industrial estate market does much to make up for the uncertainties of Thai operations that include a tax dispute, Brexit and the Land and Building Tax Act. Valuation is very cheap. BUY.

 

2Q16 preview: Core profit growth YoY and QoQ to Bt186mn (EPS Bt0.17), surging 77% YoY and 133% QoQ. Backing this is Bt55mn revenue from right of way fee from Amata B.Grimm Power (Rayong) 3 Co., Ltd. for electricity transmission installation and equity income of Bt90mn from full operation of power plants and operational turnaround at Amata NGD. Its industrial estate business was stable QoQ with a similar deed transfer of 56 rai and margin of 66% as in 1Q16. The non-recurring gain of Bt339mn booked in 2Q15 gives a 58% YoY fall in its 2Q16 net profit. As of end-June 2016, backlog is Bt2bn, up from Bt1.3bn at end-March. 1H16 net profit is expected to come out at Bt266mn, -54% YoY; however, taking out the extraordinary gain shows a core profit growth of 12% YoY. 1H16 accounts for 26% of our forecast. We estimate an interim DPS of Bt0.1, yield of 0.8%, XD in November. It will release results on August 15.

 

2Q16 land sales improve. AMATA sold 202 rai in 2Q16, up just 3% YoY but much better than the 78 rai in 1Q16. Major clients were Chinese investors in electrical appliances and packaging. This brings 1H16 land sales to 280 rai, -31% YoY, accounting for 34% of our forecast (827 rai) and 28% of its target (1,000 rai). The company says it is in talks with clients for another 1,000 rai, including two big lots. 

 

Subdued ST outlook for industrial estate market in Thailand, with these issues: 

 

- Tax dispute. The Revenue Department is disputing reported tax liabilities arising out of differences between its calculation (which are higher) and that done using BoI rules. Until this is resolved, new investors will stay sidelined. The government is taking action and we expect a positive outcome.

 

- Brexit to adversely impact FDI into Thailand in the short-term. Investors are going to put things on hold until they know what will happen next. 

 

- Uncertain impact from new tax. The new Land and Building Tax Act is to take effect on January 1, 2017, but is ambiguous with regards to land bank. It may be classified as commercial use, taxed at 0.3-1.5%, or as unused land, taxed at 1% and doubling every three years with a ceiling of 3%. If it is “commercial use”, we estimate a 5-7% hit on 2017F for AMATA. It will offset this by raising prices by 1-2%. 

 

Strong Vietnam outlook helps. AMATA’s exposure to Vietnam through its 73.2% in AMATAV gives it an entryway into Vietnam’s upcoming boom. Vietnam is attracting investment with its ample and cheap labor, superior economic growth, strategic location and supportive incentives. It has limited impact from Brexit and a big plus in its EU-Vietnam FTA that takes effect in 2018, which will make Vietnam more attractive than other ASEAN countries to EU investors. A stronger dollar will also boost FDI.