Real Estate
Industrial slowdown: no end in sight
We initiate coverage of the Thai industrial estate sector with an Underweight call.
Industrial capacity utilisation is down to 57%, so land purchases for expansion
seem implausible. We prefer Ticon to Amata for its low exposure to land sales,
more stable rental income and its focus on warehouse sales to its unit TFUND.
Table 1 : Key forecasts
Year Current Target EPS PER
Reuters end Reco price (B) price (B) FY09F FY09F
Amata Corporation AMAT.BK Dec Sell 3.22 2.1 0.47 6.85
Ticon Industrial TICO.BK Dec Buy 5.65 6.4 0.83 6.81
Priced at close of business 23 Mar 2009
Source: Company data, ABN AMRO forecasts
Industrial capacity utilisation in Thailand has fallen to 57%
We initiate coverage of the industrial estate sector in Thailand, given the country is a major
production base for the automobile and electronics industries, and a manufacturing base for
exports from Southeast Asia. The global recession has seen industrial capacity utilisation fall
for eight consecutive months, from 71% in May 2008 to 57% in January 2009, its lowest level
since 1998, mainly from declines in the auto (46%) and electronics sectors (41%).
Auto exports and domestic auto sales look vulnerable
Domestic auto sales fell 30% yoy in the first two months of 2009, as did domestic vehicle
production. A fall in the exports of major industries in January, led by computer parts and
related machinery (down 33% yoy and 12% mom), electrical apparatus for electronic circuits
(down 40% yoy and 23% mom) and vehicle parts and accessories (down 33% yoy and 6%
mom), also points to weakening global demand. Meanwhile, the Thai government’s auto
bailout plan has been cancelled due to significant criticism from other sectors.
Amata has sold nothing this year
Although it appears Amata’s shares have already priced in the negative news, we expect the
company’s situation to deteriorate as 70% of its revenue comes from land sales. Nearly half
of Amata’s clients operate in the auto industry, where we expect 30-40% production cuts in
2009. Amata has sold nothing ytd (compared to 895 rai or 143.2 ha in FY08), and we believe
the company’s earnings will fall substantially, albeit some backlog was secured from 2008.
Our DCF-based target price of B2.10 indicates 35% downside from the current share price.
We prefer Ticon for its different business model
We expect Ticon to withstand the difficulties caused by the recession better than its industrial
estates peers, because of its low exposure to land sales, relatively stable rental income and
its focus on sales of warehouses (where clients are well-diversified) to TFUND. We do
expect a decline in revenue and earnings for Ticon in 2009, but our DCF-based target price
of B6.40 indicates 13% upside potential from the current price. A 2009F DPS of B0.80 also
implies an attractive dividend yield of 14%.
Contents
Sector snapshot 3
We initiate coverage of Thailand’s industrial estate sector with an Underweight call.
Industrial capacity utilisation has dropped to 57%, so land purchases for business
expansion seem implausible.
3
Amata and Ticon – leaders in the market 3
Heavy reliance on land sales is damaging Amata 5
We prefer Ticon for its different revenue structure 6
Industrial estates in Thailand 7
The sharp depreciation of the baht following the economic crisis of 1997 made
Thailand a favoured destination for multinational companies, especially Southeast
Asian exporters in the automotive and electronics sectors. Exports now account for
70% of Thailand’s GDP.
7
Thai industrial property business 7
Thailand - manufacturing base for exports 10
Slump in global demand and poor economic indicators 12
Government stimulus is not helping 15
Company profiles 16
Amata Corporation 17
Ticon Industrial 31