Ticon Industrial Connection

Ticon Industrial Connection Plc (TICON)

Below estimate: TICON reported a 2Q12 net profit of Bt78m, down by 47% YoY and 67 QoQ. The figure was 34% below our estimate of Bt119m, due to lower-than-expected rental GM and equity income from TFUND and higher-than-modeled tax expenses.
Results highlights: Revenue dived by 20% YoY and 69% QoQ to Bt306m, primarily due to the absence of factory sales during the quarter. Note that TICON sold two factories in 2Q11 and 11 factories in 1Q12. Rental revenue grew by 14% YoY and 23% QoQ to Bt263m, thanks to warehouse portfolio expansion, which more than offset the effect of the short-term downsizing of the factory portfolio as a result of a surge in the move-out rate in areas that were inundated by flooding last year.
Although rental margin improved from 55.6% in 1Q12 to 63.5% in 2Q12 with the re-starts of operations at many factories, it remained substantially lower than the 73.4% posted for 2Q11, as the low-margin warehouse portfolio expanded, but the high-margin factory portfolio atrophied.
Equity income from TFUND and TLOGIS totaled only Bt43.8m in 2Q12, down 8% YoY, due mainly to a weak TFUND performance.
Outlook: The size and occupancy rate of the factory portfolio should resume an uptrend in 3Q12, given that the move-out flow ended in late 2Q12. As such, we expect a QoQ earnings improvement in the third-quarter, while 4Q12 should get an extra boost from a gain on sales of warehouses worth Bt2.1bn to TLOGIS.
What’s changed? We maintain our FY12 earnings forecast and YE12 target price unchanged.
Recommendation: With only 5% upside to our YE12 target price, TICON may not be attractive enough to consider entry at this point. However, its 6.1% dividend yield remains good enough to justify holding the stock. Our HOLD rating stands.