Ticon Industrial Connection

Ticon Industrial Connection Plc (TICON)

TICON’s unhappy experience with exit of tenants last year is past
Portfolio to expand strongly on production base relocations and restored
investor confidence in flood-prone areas
Earnings upped 12% in 2013, 14% in 2014, ahead of consensus by 6% and 8%
PT raised to Bt30; upgrading to BUY from Neutral

Worst is past. TICON’s leased ready-built factories (RBF) are on track for a turnaround
to a net increase this year due to strong demand in the east and the stoppage of the
hemorrhage of tenants in the central basin that was flooded in late 2011. TICON
experienced a net decline of ~19K sqm in RBF last year as tenants moved away from
the flood basin, slashing occupancy to just 50% of 194K sqm in that area.
2013 looks better. Solid demand should lead to a solid turnaround in leased RBF to a
net increase of 160K sqm, accompanied by a 48% YoY surge in demand for warehouses
to 250K this year. Backing the rise is the continuation of an investment cycle, especially
for those in the automotive sector supply chains and Japanese SMEs – who are likely to
prefer to rent rather than own. Leading the move will be assemblers as power in
Japan has become more expensive. Tenants have also put the floods behind them and
this should help lead to a gradual increase in occupancy rate in the central basin.
Gearing to warehouses. TICON is placing more emphasis on warehouses than RBF
with plans to build 250K sqm of warehouses and 120K sqm of RBF this year. This
requires a 33% rise in capex to Bt8bn this year, Bt4bn to purchase land and Bt4bn for
construction. At this time, it has ~2,000 rai for 1mn sqm development of warehouses
or about four years of demand and 330 rai for 200K sqm development of RBF or about
1.5 years of demand.
Earnings upgrade. We raise TICON’s net profit forecast by 12% to Bt1.6bn for 2013
and 14% to Bt1.8bn for 2014 to factor in the greater portfolio expansion than
anticipated and higher property sales. Our forecasts are ahead of consensus by 8% in
2013 and 6% for 2014. Upside risks lie in better selling prices and a greater rise in rent
than now expected.
Upgrade to a BUY. We roll-over valuation to end-2013 and raise target price to
Bt30/sh (fully diluted) based sum-of-the-parts (SOTP), with Bt5.7/sh for investment
value in TFUND and TLOGIS based on our price targets of Bt11.5/sh and Bt14/sh
respectively, and Bt24.3/share for value of core business based on DCF, changed from
PBV. In our view, the worst is over and we look for a rise in occupancy rate and
earnings growth with a good 3-year CAGR of 15% through 2015. With attractive TTR of
33%, we upgrade to BUY from Neutral.