Industrial Estates

Share prices get near fair values, implying limited upside. Downgrade to Neutral

Industrial Estates

BOI changes investment incentives for more specific groups

Thailand Board of Investment (BOI) is now making a report on a

change in its investment incentives for the next 5 years (2013-

2017) to meet with the 11th National Economic and Social

Development Plan and the national industrial development plan.

The new incentives will be more specific, emphasizing on the

investment that is beneficial to the country and enhances

competitiveness such as research & development and

environment projects. At the same time, the BOI will cancel the

incentives on around 80 businesses that use high portion of

labor and do not have complicated production technology. At the

same time, it will change from the zoning incentive (investment

promotion zone) to a new industrial cluster incentive such as

aircraft, food processing, rubber, and science. The incentives will

be complete and announced for the private sector to

acknowledge and adjust itself before they takes effect.


Only slight effect on customer base, land sales, and profit

Preliminarily, we foresee that the change in the BOI investment

incentives will have effects on the industrial estate sector in

limited area and in the long run. This is because most listed

companies in this sector are located in Central and Eastern

Thailand which are mainly auto and electronics component

entrepreneurs, power plants, and consumer goods producers,

which would still get the privilege as in the previous incentives

because they are the businesses that are beneficial for the

country. At the same time, we still have a positive outlook

toward land sales in 2013, projecting at 5,000 rais after a new

high in 2012 at 7,800 rais (from ROJNA's expansion of 2

industrial estates and mega land sale). The industry will benefit

from an arrival of the AEC in 2015. With advantages from the

location (Thailand is in the center of the region) and strong

industrial businesses, Thailand is believed to be used as an

ASEAN hub of logistics for linking supply chain to neighboring

countries. In addition, Thailand will also benefit from Japan's

economic stimulus package of 10tr Yen which will provide

Japanese investors, the most important clients of the Thai

industrial sector, with low-cost source of capital for easier plant

construction. Earnings in 2013 are projected to thrive notably

from high income recognition from backlog of more than B11bn

at end-3Q12. Norm profit in 2013 is estimated at B7.6bn,

growing 36%yoy.


Downgrade to NEUTRAL; buy ROJNA and speculate MDX

Since the beginning of the year until present, prices of stocks in

the sector have rallied aggressively (AMATA 25%, HEMRAJ 23%,

ROJNA 20%, and TICON 19%) until they are also most fully

valued; we are likely to downgrade our recommendation from

these stocks in the future. Meanwhile, land sales likely have

already passed the peak in 2012. Accordingly, we downgrade

the sector from Overweight to Neutral and select a stock with an

upside of above 10% like ROJNA(FV@B14.18) as a top pick of

the sector. We also recommend speculate MDX(FV@B11.88)

whose profit is projected to grow from the 290-MW Nam Theun

- Hinboun power plant extension project in Laos.