Amata Corporation

Amata Corporation Plc (AMATA)
Investment thesis
We attended AMATA’s analyst meeting yesterday and feel positive about its 2H13 earnings outlook—land transference will rise. Weak 1H13 presales have raised market concerns over the sustainability of earnings next year, but management maintains its FY13 bookings target at 3,000 rai, as it expects to ink several big-lot presales contracts by YE13. We believe AMATA’s current FY13 core PER of 12.5x (lower than its long-term average of 13.5x) is the result of a market overreaction to weak 1H13 land bookings. As such, our BUY rating stands with a YE13 target price of Bt24, pegged to a PEG ratio of 0.5x.
Presales outlook—2H>1H
Although YTD land presales total only 611 rai, management reaffirms an FY13 land bookings target of 3,000 rai. The firm guides that bookings will be concentrated in 2H13, driven by automotive-related manufacturers. We conservatively assume presales of 2,500 rai for FY13, but that still implies a YE13 bookings backlog of Bt9bn, up from Bt5.6bn at end-June. As for land transference, management expects some HoH growth in 2H13, but the final number will depend on customers’ decisions regarding timing and the speed of document processing at the Land Department.
2 SPP projects to boost & smooth the forward earnings profile
AMATA aims to increase recurring income by investing in two SPP projects—AMATA B.Grimm Power 4 Co Ltd and AMATA B.Grimm Power 5 Co Ltd—with shareholdings of just over 20% in each (a total investment cost of 563.2m, to be paid in 2H13 and 1H14). The two firms operate power plants with an installed capacity of 132MW each and PPAs with EGAT for 90MW. CODs have yet to be finalized, but we expect the two power plants to boost AMATA’s recurring income. We roughly estimate profit accretion from power projects of Bt70m/year.
Expanding factory portfolio to buoy recurring income further
The firm also aims to expand its rental factory portfolio by 50% (up by 70,000sq.m from 140,000sq.m at YE12), which will enlarge its recurring income substantially. We conservatively assume in our model that factory portfolio expansion in FY13 will boost rental revenue by 20% (so there may be some scope for upside here). Moreover, the good rental margin (of 67-70%) will smooth out the effect of GM volatility tied to land sales.
And in the future, a new option for financing investments
The expanding rental factory portfolio means that the properties could be spun off to an REIT at some stage in the future in order to raise cash for new investments. However, we don’t expect AMATA to sell rental factories to an REIT in the near future, as its D/E ratio remains low at 1.36x and selling rental factories to such a fund would mean foregoing long-term recurring income.