Ticon Industrial Connection

Ticon Industrial Connection Plc (TICON)

Investment thesis: We have upgraded our TICON rating to BUY from HOLD as the worst has passed and the outlook has clearly improved. Our FY12-13 earnings forecasts rise by 50% and 20%, respectively, to factor in the spin-off plan and stronger-than-expected demand for rent. We also reduced our discount to TICON’s SOTP value to 20% from 30%. As such, our YE12 target price has been raised to Bt14.30 from Bt11.30.
Strong numbers, despite flooding: Demand for rental factories and warehouses in 4Q11 was stronger than we expected. The net additions to occupied space in the quarter were 36,200sq.m for factories and 21,077sq.m for warehouses. However, for the whole year, demand for warehouses was greater than for factories. The factory portfolio expanded 96,115sq.m, while warehouse portfolio grew 138,763sq.m.
Just ignore weak 4Q11: We expect TICON to report a net loss of Bt82m, due to revenue lost from inundated factories and Bt70m in non-cash expenses related to reductions to deferred tax assets.
Target 200K sq.m of new leases: While we expect demand for new factories to fade with the end of the automotive industry CAPEX cycle in 2012, we anticipate greater demand for storage in tandem with increased vehicle production. TICON targets 200K sq.m of new leases, in line with our model but around 15% below last year’s number of 234,878sq.m.
Three spin-offs worth Bt3.7bn this year: The first tranche in 1Q12 will comprise factory sales to TFUND that were postponed from 4Q11 (due to flooding), but the size will be cut in half to Bt700m, as some factories are being repaired. The second tranche in 2Q12 will be Bt1.5bn in warehouses to TLOGIS and the planned third tranche in 3Q12 is Bt1.5bn worth of factories to TFUND. Thus, total asset monetization in FY12 should hit a new record of Bt3.7bn. However, as the spin-off amount is typically based on expected new rents, we assume only Bt3.0bn in our model, given that the global economic slowdown remains a headwind against FDI in Thailand. Note that a change in the spin-off amount would only insignificantly impact our SOTP value.