Industrial estates
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China-Japan dispute blows direct investment to Thailand
OVERWEIGHT
- Chine-Japan dispute extends…flood dam construction
around industrial estates almost 100% complete
- BOI privilege exercise, land sales, backlog, and profit of
the sector hits record high
- Maintain OVERWEIGHT. Top pick is ROJNA, followed by
AMATA
- Chine-Japan dispute extends…flood dam construction
around industrial estates almost 100% complete
The problem between China and Japan over the disputed island in
the East China Sea has gone worse and turned violent. Many
Japanese companies in China, such as Toyota and Honda, have to
halt their operation. The president of Japanese External Trade
Organization or JETRO said China is a key production base as it has
a big market, but if there has to be a move of production base
ASEAN would be the first alternative, particularly Thailand which is
an important investment center of Japan. At the same time,
AMATA’s management remarked that because of the situation, more
direct foreign fund would flow to Thailand and it will benefit
industrial estate sector as the companies in the sector would be able
to sell more land. For a construction of flood dams for 7 industrial
estates in Central Thailand, it is now almost 100% complete. The
flood dams around Rojana industrial estate in Ayutthaya has
progressed by 99%, while the Bhumibol Dam, the biggest water
reservoir in the North of Thailand which is an indicator for water
volume in Central Thailand, still has much more storage capacity
left. On 13 September 2012, the Bhumibol Dam contained 7.2
million cubic meters of water, which was 54% of total its storage
capacity, lower than water volume in the dam during the same
period last year at 11,300 million cubic meters. Therefore, we
believe there is a slim risk for a flood problem this year.
BOI privilege exercise, land sales, backlog, and profit of
the sector hits record high
BOI’s privilege exercising in January – July 2012 has been B574bn
in total, increasing 1-fold yoy, while total amount of the exercise is
projected at a historical high at B800bn. Japan is still a top investor
in Thailand from its demand to expand production bases overseas
due to a problem of internal power shortage and Yen appreciation.
At the same time, Chinese investors have also given a sign of
additional factory expansion in Thailand. For example, Ling Long
Tyres, a tyre manufacturer from China, has bought 306 rais of land
in Hemraj Eastern Seaboard industrial estate in Rayong. In addition,
land sales in 1H12 of 3 industrial estates under our coverage total
3,000 rais, growing 1-fold yoy (HEMRAJ 1,450 rais, AMATA 1,080
rais, and ROJNA 500 rais) and land sales in FY2012 is projected to
hit 5,000 rais, up from 3,700 rais in 2011. Furthermore, backlog at
end-2Q12 has thrived more than B10bn (AMATA B5.4bn, HEMRAJ
B3.3bn, and ROJNA more than B2bn), which will be gradually
recognized in 2H12 until 2013. Combined with Gheco-one power
plant of HEMRAJ which has commenced its operation in July 2012
and ROJNA Power which will resume its production in late 2012,
profit of the sector would grow continuously in 2012. We estimate
norm profit of FY2012 at B5.2bn, up from a low base of B1.9bn in
2011.
Maintain OVERWEIGHT. Top pick is ROJNA, followed by
AMATA
We maintain OVERWEIGHT for the industrial estate sector and select
stock that will benefit the most from the situation, which is
ROJNA(FV@B12), as a top pick of the sector. 50% of ROJNA’s
customers is Japanese and the management is also planning to
increase sales target in 2012 to 1,500 rais from 1,000 rais because
2 new industrial estates in Rayong and Prachinburi have been
occupied almost entirely. AMATA(FV@B24) is another company that
will get the benefit because not only Japanese investors as major
customers but it also has Chinese customers from its joint venture
with Holley. 700-800 out of 1,000 rais of land in Amata City
industrial estate in Rayong has already been booked.
