Amata Corporation

Amata Corporation Plc (AMATA) 

 

Investment thesis

We downgrade our rating on AMATA to HOLD from a TRADING BUY, with revised target price of Bt14 (from Bt23.20). Overall, we cut our 2015 presales target to 800 rai and core net profit for 2015 and 2016 to Bt982m and Bt1,334m, respectively. Our 2H15 outlook for the firm is now diminished as a result of a slower presales outlook for 2H15 and delays in the firm’s future projects in Vietnam. These factors come on top of the deterioration of what seemed to be a recovery in Thailand’s manufacturing industry. Although AMATA VN is on track for its IPO in 4Q15, its anticipated accretion to AMATA’s value is now minimal. Nonetheless, we believe any further price decrease is now limited by a cheap price to its asset liquidation value and its reoccurring utilities and services income contribution is expected to surge from 16% to 34% of total net profit this year.

Diminished presales outlook

Following a progressive presales recovery in 1H15 YoY for AMATA, our recent talks with management and relevant officials have led us to believe that the firm’s 2H15 presales will weaken. It is now clear that the state’s support for foreign direct investment (FDI) as well as the firm’s Long Than project in Vietnam will not come in time for this year. Amid the stagnant global economy and an unclear outlook for governmental industrial support and regulation, customer inquiries are also not turning into sales. Investors have no incentive to rush their investments and are taking a wait-and-see stance. As a result, we revise down AMATA’s presales target for this year to 800 rai, 20% below the street’s target of 1,000 rai.

Vietnam business and value accretion fall short of expectations

As of today, AMATA VN is set to issue and float 16.7% new shares only in 4Q15. Without AMATA selling its stake in the IPO, we now expect the 2015 one-off gain to remain at Bt400m from the REIT divestment. Our sum-of-the-parts valuation indicates that the IPO is now unlikely to add any value to its parent’s shares—the value that the IPO unlocks is equally outweighed by the dilution of new shares. Moreover, the first presales from the firm’s Long Than project are now due in 2H16—this was one of the major components supporting our previous presales target of 1,100 rai.

Liquidation value and reoccurring income to support price

Despite the flagging outlook, AMATA’s price downside is, however, limited. The stock is currently trading at a 2015 PBV of 0.9x—the only instance the firm ever traded below its book value was after the subprime crisis (October 2008 – July 2009). Moreover, the firm’s asset liquidation value, including net debt, is Bt18.40/share. Regarding earnings, we expect its 2H15 land transfer revenue to expand HoH, utilities and services income are set to rise at a steady rate of 8% and its equity income from the power business to surge 22% YoY for 2015. With the firm’s seventh SPP (120MW, 27% stake) due to be commissioned in November 2015, we anticipate the firm’s recurring income to reach as much as 34% of its net profit this year.