Amata Corporation

Strong core earnings to prevail

Amata Corporation Plc (AMATA)

Investment thesis

We attended AMATA's analyst meeting yesterday and remain confident in its profitability profile. Management has an FY13 land sales target of at least 3,000 rai, as we expected. The prospects for rental factories are also good, boosted by rental portfolio expansion. We believe AMATA's current FY13 PER of 17x (0.6SD above its long-term mean) has yet to fully reflect its stronger outlook (an FY13-14 core earnings CAGR of 41%). As such, our BUY rating stands with a YE13 target price of Bt28, pegged to an FY13 PER of 20x (1.5SDs above its long-term mean).

Bullish on land sales target—eyes on 3,000 rai

Management announced an FY13 land booking/sales target of 3,000 rai, which looks achievable, given that current Letters of Intent cover 2,000 rai. In addition, demand for industrial land remains strong, driven by the re-location of Japanese manufacturers and small automotive suppliers. AMATA also aims to expand its rental factory portfolio by 30-40% (up by 40,000-50,000 sqm from 120,000sq.m at YE12) which will enlarge its recurring income substantially.

Exceptional growth profile

Land bookings/sales of 3,000 rai would translate into Bt9bn to be recognized as revenue over the next 18 months, which would boost FY14 revenue visibility (the booking backlog was Bt6bn at YE12). Assuming that 2,000 rai is transferred in FY13 and 1,600 rai in FY14, we would expect income from land sales to jump by 46% this year and 14% next. Moreover, factory portfolio expansion should boost rental revenue by 20% (from Bt442 to Bt529 in FY13). Assuming that GM normalizes at 48percent for both FY13 and FY14, down from 51% in FY12 (when a rental cost item was reversed), we would expect an FY13-14 core earnings CAGR of 41%.

Scope for earnings upside

Land bookings to AMATA's business partner, Holley Group, aren't included as revenue till the land is transferred to Holley's clients. Holley has already booked 600 rai of land at Amata City, some of which will be transferred in FY13. Under the best-case scenario of 600 rai transferring this year, AMATA's FY13 net profit would exceed our current model by 12%.

What if AMATA sell factories to a property fund?

According to local media, management aims to sell factories in two industrial estates worth Bt1.8bn to a new property fund this year. If AMATA were to do so, we would roughly estimate a one-time gain of about Bt217m this year (upside of 15% to our current earnings model). However, at this stage we don't expect AMATA to sell rental factories to a property fund, as it would mean foregoing long-term recurring income (it recently announced a business model shift to utilities and rental income from land sales—recurring income is to expand from 20% of the top-line in FY12 to 80% over the long-term).