Ticon Industrial Connection
A cheap laggard with strong yieldTicon Industrial Connection Plc (TICON)
* We fine tune TICON's fair investment in two property funds, TFUND and TLOGIS, to reflect the increase in unit prices YTD. We raise our sum-of-the parts based TP to Bt21.0 from Bt18.0. In 2013, TICON should be back to its full operation with expected asset sales of at least Bt4bn. Maintain OP.
* Rising fund value of its two property funds. Since YTD, the market price of its two property funds, Ticon Property Fund (TFUND TB, Bt12.30, NR) and TPARK Logistics Property Fund (TLOGIS TB, Bt12.60, NR) increased about 8%, which were about 8-15% above our estimations. At present, TICON holds stakes of 27% in TFUND and 26% in TLOGIS. These two property funds will continue to be its important vehicles to divest assets into for future fund raising to invest in higher return assets.
* Asset monetization to continue. In 2012, TICON divested its assets with a combined value of Bt4.3bn and 223,001 sqm to its property funds. These included the factory buildings with total sellable area of 117,664 sqm to TFUND, and the warehouse buildings with total sellable area of 105,337 sqm to TLOGIS. In 2013, we estimate TICON will sell total assets of Bt4.0bn to its two property funds (100k sqm each of factories and warehouses).
* Target stable growth of new leasable area in 2013. TICON targets its total leasable area will rise 370k sqm in 2013 (120k sqm for new factories and 250k sqm for new warehouses), flat growth from 370k sqm in 2012. The company has set capex of Bt5-6bn in 2013, vs Bt5.5bn for 2012 and Bt3.5bn in 2011, of which Bt2bn each year will be used for new land purchases.
* Good closure for 2012. TICON disclosed its 2012 new leasable area of 370k sqm, up 23percent from 2011. Including cancellations, its net increased leasable area reached 183k sqm, down 21% due to the flood in late 2011. Of the net area increasing, about 13k sqm was from factories and 170k sqm from warehouses. Demand was highly focused on the Eastern part of Thailand, and that the majority of clients were from the auto-parts sector.
Earnings and target price revision
* No change.
* 12-month price target: Bt21.00 based on a RNAV methodology.
* Catalyst: Rising net leasable area. Continued asset sale to property fund.
Action and recommendation
* Maintain OP with a new TP of Bt21.0 (from Bt18.0). TICON is trading at 7.5x 2013E PER, vs its LT mean of 13.7x, which is cheap, in our view. Continued improvement in its rental business and further assets sale to property funds are key catalysts. Our new TP of Bt21.0 implies 9.7x 2013E PER. The latest closing price offers an attractive dividend yield of nearly 9%. Also, YTD market price has underperformed its peers (TICON +8%, AMATA +27%, HEMRAJ +20%, ROJNA +16%, NNCL +13% and TFD +38%).