Morning Matters - RHB TradeSmart · PwC sees 11% spending rise. Entertainment and media spending in...

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11-Jul-2013

Morning Matters

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WHAT’S INSIDE

On The Platter

Ticon Industrial Connection (TICON TB; FVTHB24.0-Buy): Trading At Discount To NAV With 6% Yield

Despite its unexciting performance in 1H13, we expect Ticon’s new rental space to grow significantly from 3Q13 onwards and its earnings to rebound sharply due to an asset divestment in 4Q13. The stock is now trading at a discount to its 2012 RNAV of THB21, with a handsome 6% yield. Assuming the gap between the book value and fair value of its investment assets still stands at 64% (on par with last year), the company’s RNAV for 2013 is estimated at THB24.

MEDIA HIGHLIGHTS

MPC holds key interest rate at 2.5%.

PwC sees 11% spending rise.

PTTGC bolsters Sinochem partnership.

Hemaraj land sales ahead of target in 2013's first half.

TMB targets sharp growth in retail loans.

Thai AirAsia, Thai Post link up for speedy EMS.

ECONOMIC HIGHLIGHTS

Thailand: Holds rate as baht retreat reduces pressure to ease.

Indonesia: Plans policies to quell property costs.

Euro: EU unveils bank-crisis plan with EUR55bn fund.

US: Bernanke backs stimulus for foreseeable future amid QE debate.

US: Wholesale inventories unexpectedly drop as sales surge.

SET Intra-Day Graph

Source: Bloomberg

Key Market Indices (10 July 2013)

Value Chg % Chg % YTD

SET 1388.41 -10.28 -0.7% -0.3%

SET50 946.66 -2.45 -0.3% 0.7%

SET100 2073.84 -10.15 -0.5% 0.3%

Dow Jones 15291.66 -8.68 -0.1% 16.2%

S&P500 1652.62 0.30 0.0% 15.9%

Nasdaq 3520.76 16.50 0.5% 15.4%

FTSE 6504.96 -8.12 -0.1% 9.4%

FSSTI 3188.04 9.41 0.3% -0.4%

Hang Seng 20904.56 221.55 1.1% -9.2%

Nikkei 14416.60 -18.15 -0.1% 38.7%

KLCI 1768.71 2.22 0.1% 4.4%

SHANGHAI SE 2008.13 42.67 2.2% -11.5%

JCI 4478.65 74.84 1.7% 3.8%

SET 5-yr avg 2012 2013F

PE (x) 14.1 16.0 12.9

P/BV (x) 1.8 2.2 2.1

Yield (%) 4.1 3.1 3.5

Key Statistics

SET Value by investor Type: Daily

Buy (THBm) Sell (THBm) Net (THBm)

Institution 4,504.05 7,417.96 -2,913.91

Proprietary 6,708.81 6,743.91 -35.09

Foreign 13,845.06 12,031.20 1,813.86

Retail 21,302.04 20,166.90 1,135.14

SET Value by investor Type

MTD (THBm) YTD (THBm) Institution -6,334.96 63,887.69

Proprietary -463.40 -7,398.26

Foreign -4,391.34 -80,975.89

Retail 11,189.70 24,486.46

SET50 Index Future

Long Short Net MTD YTD

Institution 9,639 9,910 -271 934 14,139

Foreign 3,229 5,132 -1,903 -2,827 -15,667

Local 17,256 15,082 2,174 1,893 1,528

Foreign Fund Flows (USDm) Last MTD YTD YTD(%) 58.0 -140.0 -2,663.8 -219.1

See important disclosures at the end of this report 2

Media Highlights

MPC holds key interest rate at 2.5%.

The central bank's Monetary Policy Committee unanimously voted to keep its one-day policy rate unchanged at 2.5% at its meeting on Wednesday afternoon. MPC secretary Paiboon Kittisrikangwan said members discussed how global economic conditions had slowed due to the slowdown in China's economy, affecting Asian exports despite some improvement in the US economy. Growth in the Thai economy also has moderated due to a slowdown in domestic demand and in exports, with private consumption weaker as consumers seek to control rising debt. (Bangkok Post) PwC sees 11% spending rise.

Entertainment and media spending in Thailand is expected to rise to US$14.8 billion by 2017, up from $9.7 billion projected this year, fuelled by surging demand for internet access, TV advertising and consumer and educational book publishing, a PwC forecast says.The fast-expanding Thai entertainment and media market will grow at a compound annual growth rate of 11.3% over the next five years _ the fourth-highest rate in Southeast Asia compared with much slower growth in developed markets including 4.8% in the US and 3% in Western Europe. Globally, the market is expected to grow by 5.6%, generating revenue of $2.2 trillion in 2017, up from $1.6 trillion last year. The US will remain the largest entertainment and media market, reaching $632 billion in 2017 from $499 billion last year. (Bangkok Post)

PTTGC bolsters Sinochem partnership.

The SET-listed PTT Global Chemical Plc (PTTGC), Thailand's largest petrochemical producer, expects to sign a memorandum of understanding with Sinochem Group this quarter to jointly develop a specialty polymer plant in China. Chief executive Anon Sirisaengtaksin said that once the memorandum is signed, the two partners will conduct a feasibility study of specialty polymers for use in automotive, electronic and building applications. "We want to have polymer products such as polycarbonate and polyurethane to deal with rising competition in commodity-grade polymers as more supply arrives in this region from the Middle East in the next several years," said Mr Anon. PTTGC and Sinochem have been in a strategic partnership for polymer sales since last year in the Chinese market and elsewhere.(Bangkok Post) Hemaraj land sales ahead of target in 2013's first half.

The SET-listed Hemaraj Land and Development Plc, Thailand's leading industrial land developer, sold 1,190 rai in the first six months, on a pace to beat its full-year revised target of 1,800 rai. Land sales, including some rental plots, were 476 acres or 190 hectares, with 54 contracts comprising 32 new customers and 22 expansion projects from existing customers. More than 44% of customers are Japanese firms and more than 40% are in the automotive sector, said president and chief executive David Nardone. Hemaraj recently revised upward its 2013 land sales target, from 1,600 rai to 1,800. "Hemaraj started the first half of 2013 with solid industrial estate land sales. Thailand continues to be attractive for relocation, consolidation and growth due to reasonable costs, currency, infrastructure and market access, "Mr Nardone said. Rental of ready-built factories grew to 260,356 square metres,up10% from 2012's cumulative balance.Rental of Hemaraj Logistics Parks also rose by 43,764 sq m. (Bangkok Post) TMB targets sharp growth in retail loans.

TMB Bank aims to adjust its loan portfolio over the next couple of years by expanding the share of retail loans to 30 per cent from 22 per cent at present to sustain the net interest margin (NIM) of 3 per cent. Chief Executive Officer Boontuck Wungcharoen said yesterday that the bank's NIM improved to nearly 3 per cent from 2 per cent as it focused on high yield loans. However, because of the ongoing loan ratio adjustment, loans in the first half grew only 2 per cent. In the next 2-3 years, corporate loans will account for 40 per cent of total loans, down from 45 per cent, small and medium-sized loan will be 30 per cent and retail loans will rise to 30 per cent from 22 per cent. The bank hopes its NIM will reach 3 per cent by the end of this year, he said, and added that the loan proportion adjustment will help sustain the NIM. (The Nation) Thai AirAsia, Thai Post link up for speedy EMS.

Thai AirAsia, the biggest low-cost carrier, has joined hands with Thailand Post to introduce an EMS [Express Mail Service]

super speed service as part of its plan to strengthen its financial performance. Currently, ticket sales contribute 84 per cent of

revenue, while non-ticket sales make up 16 per cent of total. The latest service launch will help add one percentage point to

the non-ticket sales. Currently, the firm earns more than Bt200 million per year from its cargo service. Tassapon Bijleveld,

Thai AirAsia's CEO, said the EMS service is in the early start-up stages in three major cities - Chiang Mai, Phuket, and Hat

Yai. When in full operation, customers using the service at the post office before 10.30am can have their parcel delivered to

the receiver on the same day. However, in Bangkok its delivery service is currently limited to Muang district only. Service

coverage will be expanded to other parts of the country next year. The company believes the EMS service will have more

opportunity for growth. (The Nation)


Economic Highlights

Thailand: Holds rate as baht retreat reduces pressure to ease.

Thailand kept its benchmark interest rate unchanged, as the baht’s retreat from an almost 16-year high damps pressure for further monetary easing and allows policy makers to guard against growing household debt. The Bank of Thailand maintained its one-day bond repurchase rate at 2.5%, with monetary policy committee members voting unanimously to hold, it said yesterday. Since Thailand cut borrowing costs in May to support growth, capital outflows from the region have caused the baht to fall after reaching its strongest level since 1997 in April. (Bloomberg) Indonesia: Plans policies to quell property costs.

Indonesia said it plans to quell rising property prices and address a shortage of dollars, as it seeks to cool inflation and support a weakening rupiah. Bank Indonesia sees inflation reaching the upper end of its estimated 7.2%-to-7.8% range for 2013, and will respond if price gains approach such levels, Governor Agus Martowardojo told reporters yesterday. The central bank holds its monthly policy meeting today. Bank Indonesia unexpectedly raised its key rate for the first time since 2011 at its June meeting ahead of an increase in subsidized fuel prices. (Bloomberg) Euro: EU unveils bank-crisis plan with EUR55bn fund.

The European Union’s executive arm proposed procedures for handling failing banks with a EUR55bn backstop, setting up a showdown with Germany over control of taxpayers’ cash. Michel Barnier, the EU’s financial-services chief, unveiled the plan yesterday for a single resolution mechanism that gives the European Commission in Brussels the power to decide when banks need to be saved or shut, potentially resulting in the use of public funds. Germany has warned this may violate the EU’s basic laws by usurping national control over finances. (Bloomberg) US: Bernanke backs stimulus for foreseeable future amid QE debate.

Federal Reserve Chairman Ben S. Bernanke backed sustained stimulus for the foreseeable future even as the minutes of policy makers’ June meeting showed them debating whether to halt bond buying by the Fed this year. “Highly accommodative monetary policy for the foreseeable future is what’s needed in the US economy,” Bernanke said yesterday. The Fed chairman’s remarks came just 3 hours after the central bank released minutes of the June 18-19 gathering showing that about half of the 19 participants in the Federal Open Market Committee wanted to halt USD85bn in monthly bond purchases by year end. (Bloomberg) US: Wholesale inventories unexpectedly drop as sales surge.

Inventories at US wholesalers unexpectedly declined in May by the most since September 2011 as sales surged, pointing to a pickup in orders and production. The 0.5% decrease in stockpiles followed a 0.1 percent drop in April that was initially reported as a gain, the Commerce Department said yesterday. Sales jumped 1.6%, the most since November. At the current sales pace, wholesalers had enough goods on hand to last 1.18 months, the fewest since April 2012, the report showed. Lean inventories, which may contribute less to second-quarter growth, suggest companies will boost orders to factories to keep pace with growing demand. (Bloomberg)


Outperform

Current Target Upside/

Recc. Price Price Downside PE (x) Yield (%) Remarks

(Bt) (Bt) (%) 2013F 2013F

ADVANC Buy 278.00 293.00 5.4 22.2 4.5

CPN Buy 40.25 73.00 81.4 14.3 1.6

DTAC Buy 110.50 122.00 10.4 19.8 3.2

INTUCH Trading Buy 80.00 104.00 30.0 17.0 5.4

THAI Buy 20.90 42.60 103.8 9.8 3.7

CPF Buy 27.75 38.00 36.9 33.8 2.0 .

Underperform

Current Target Upside/

Recc. Price Price Downside PE (x) Yield (%) Remarks

(Bt) (Bt) (%) 2013F 2013F

BJC Sell 41.00 57.00 39.0 20.9 1.5

TVO Buy 18.00 28.00 55.6 7.2 9.5

OISHI Sell 123.00 130.00 5.7 36.3 2.8

BIGC Neutral 179.00 198.00 10.6 23.5 1.3

MAJOR Sell 21.60 18.50 -14.4 20.5 4.4

10 9 8 5 4 10 9 8 5 4

1 BAY 2,639.2 498.0 267.3 396.6 1,312.2 SCB -160.1 -17.1 -184.2 -37.3 -58.2 BAY 4,907.1 KBANK -1,296.8 INTUCH 43,134.1 SCC -7,652.8

2 INTUCH 630.4 235.7 -34.9 44.8 305.7 AOT -96.1 -26.2 -7.0 82.1 -3.3 INTUCH 1,364.2 SCB -652.4 ADVANC 13,306.7 BANPU -3,239.5

3 SCC 294.6 10.0 98.9 74.0 -213.7 PTT -60.6 222.8 -216.7 469.1 20.2 DTAC 875.9 MAKRO -182.9 DTAC 12,790.3 KBANK -2,994.5

4 BBL 219.3 543.0 -470.5 15.7 -80.7 SIRI -56.6 87.8 -55.6 -49.0 7.5 PTTGC 708.3 TISCO -149.8 BAY 11,736.2 LH -1,878.3

5 LH 199.8 397.4 -48.9 -30.7 -71.3 JAS -53.6 71.6 -29.5 23.6 -21.8 LH 655.3 HMPRO -133.9 PTT 7,888.9 SIRI -1,171.1

6 LPN 175.6 267.7 48.6 5.8 7.6 DTAC -27.8 681.8 9.3 7.4 0.3 PTT 642.9 TCAP -133.0 PTTEP 7,741.8 DEMCO -647.8

7 PTTGC 163.6 57.9 -39.3 135.3 103.1 SPALI -24.3 2.8 4.8 -22.3 -18.8 LPN 471.6 BANPU -104.7 PTTGC 7,623.3 CK -589.7

8 BANPU 135.8 -94.1 -98.9 -5.1 6.3 BEC -22.8 33.1 45.0 43.4 18.8 TOP 390.5 SAMART -100.1 MAKRO 4,003.2 UV -417.2

9 TRUE 90.2 -5.1 -22.1 26.9 3.9 KK -15.6 3.7 -6.4 39.7 -12.4 KTB 353.9 MCOT -88.3 TOP 3,860.5 IRPC -401.2

10 KTB 87.9 -53.1 -80.0 24.2 -11.7 TRC -11.0 -11.2 -4.9 1.2 0.0 AEONTS 352.5 HEMRAJ -82.6 TMB 3,766.0 RML -329.0

11 THCOM 81.7 0.6 -0.1 -0.2 -0.0 MALEE -9.1 -19.8 3.5 9.0 0.1 SCC 343.4 SPALI -58.2 BIGC 3,498.7 QH -276.3

12 CPN 73.4 101.5 -26.6 45.5 -16.2 KTC -8.5 0.0 -0.5 0.3 0.1 BIGC 306.6 AMATA -45.7 CPALL 3,057.3 ASP -267.8

13 BECL 45.4 24.3 1.5 0.7 -16.5 CENTEL -7.4 -0.4 -1.9 -0.8 -4.5 TUF 244.8 IRPC -41.0 THAI 2,883.3 BLA -261.7

14 TMB 34.3 -28.5 6.3 9.1 7.4 MCOT -7.3 -4.9 -9.7 -10.7 -2.8 CPF 236.8 SIM -37.1 CPN 2,870.1 MINT-W4 -238.0

15 ROBINS 34.2 -8.1 19.7 27.6 53.5 SRICHA -6.6 -6.9 -6.3 0.3 0.2 ROBINS 198.4 ITD -36.5 TCAP 2,760.6 TRC -221.9

16 GLOBAL 30.4 6.8 31.6 -0.5 -11.6 TASCO -5.6 -3.4 1.2 -0.3 -0.1 CHG 193.7 IVL -34.2 TUF 2,732.0 LRH -196.8

17 TOP 28.8 -13.1 -54.6 140.3 131.0 PTL -5.4 -0.1 -1.3 -1.1 -0.3 CPN 189.3 VGI -32.9 MINT 2,561.5 GUNKUL -189.5

18 CPF 26.8 156.0 -16.0 30.3 -1.2 UMI -3.4 -2.6 -0.2 -0.1 0.0 ADVANC 178.1 MINT -29.5 SPALI 2,559.5 NOBLE -161.8

19 TUF 24.9 31.7 78.0 25.2 24.7 LEE -3.3 -1.2 0.0 -0.0 0.1 BTS 156.4 BBL -28.5 BBL 2,510.4 STPI -157.0

20 EGCO 24.1 20.8 9.6 11.2 6.7 PS -3.3 8.5 -4.8 1.1 2.7 PTTEP 150.3 AAV -27.2 CPF 2,418.1 AMATA -156.0

% % of % of

Turn. paidup paidup

1 BAY 44.73 1 TISCO-P 66.16 65.86

2 LH 50.98 2 BBL 30.61 29.99

3 SIRI 4.43 3 KBANK 27.40 28.50

4 QH 5.39 4 SPALI 22.67 17.94

5 TRUE 8.87 5 E-W1 21.26 22.27

6 JAS 4.44 6 INTUCH 21.20 5.41

7 TMB 6.31 7 THRE 20.26 15.50

8 KTB 8.04 8 GOLD-W1 18.91 14.87

9 INTUCH 29.72 9 SPCG-W1 18.77 13.31

10 GEN-W4 4.18 10 LPN 18.03 21.73

11 LPN 30.96 11 LH 17.65 21.18

12 HEMRAJ 32.23 12 TWFP 16.09 24.77

13 BTS 5.00 13 DTAC 15.83 13.33

14 CPF 12.81 14 TCAP 15.41 12.60

15 CPN 21.34 15 BAY 14.57 13.89

16 N-PARK 0.53 16 THIP 14.50 12.64

17 KMC 3.56 17 AP 14.30 12.92

18 CHG 18.51 18 PRANDA 13.79 14.59

19 KGI 12.59 19 LALIN 13.70 13.53

20 PTTGC 10.71 20 TISCO 12.78 13.69

Source : SET.OR.TH

-164,300

2,615,700

121,600

4,392,100

6,800,000 6,921,600

967,700

11,039,9005,437,800

3,310,400 1,695,400

8,629,100

3,021,000

4,798,400 3,830,700

7,012,0002,619,900

5,636,700 8,657,700

- 12,050,949 12,050,949 -12,050,949

9,820,100 1,419,200 11,239,300

6,074,143,747 1,772,200

8,400,900

5,602,100

374,824,060 315,525,949 2,367,811,000

1,277,816,397 196,883,280 161,065,653

4,858,400

367,964,647

885,016,612 843,803,210

1,159,700 -6,678,400

99,645,251 800,621,625

5,005,800 1,615,000

56,088,400 59,270,000

113,016,100

102,332,212 2,312,921

812,2001,931,000 4,674,200

3,948,679

4,888,400 30,000

3,130,800 817,879

2,743,200

4,918,400

825,000,000

406,666,954

8,000,000

408,844,479

111,592,900

1,011,300

2,859,920,138

2,123,251,472 10,025,921,523 1,769,487,156

1,529,916 2,354,634 9,506,055

279,999,581

1,475,698,768

52,556,900 37,278,800

266,137,706 320,609,239

3,512,494,860

392,073,718

711,734,965 544,461,149

74,128,598 74,970,598

679,668,650 173,363,101

2,291,364

11,651,500 6,797,200

9,980,900 18,172,900

31,629,000 12,645,400

18,448,700 4,854,300

28,153,800 -8,192,000 3,206,420,305

22,137,200 9,491,800

12,436,774 7,854,046

19,827,600 4,687,100 24,514,700 15,140,500

10,145,410

1,716,553,249

-22,913,118

347,000,000

2,393,260,193

389,132,536

77,281,246 73,782,042

6,183,600 307,949,569 19,761,700 13,578,100 33,339,800

572,486,791 20,809,932

655,719,837 682,155,834

584,222,028 18,527,568 57,865,068

11,417,600 34,330,718 45,748,318

NetBuy Sell Total

1,908,842,894

82,285,800 11,976,149 22,400 22,300 94,261,949 70,309,651

39,337,500

33,858

Net Buy Net Sell Net Buy Net Sell

2 Jan- 10 Jul 1310 July 13

(Last)

NVDR Shrs. Paid up CapitalNVDR Shrs.

10-Jul-13 2-Jan-13

Most Active Values (Btmn)

11 July 2013

Jul13 Jul 13

Total Volume Shares

Most Active Volume (shares) NVDR Shares to Total Paid-up Shares(%)

NET BUY NET SELL Month to Date Year to Date

THAI NVDR : Top Ranking

See important disclosures at the end of this report Powered by Enhanced Datasystems’ EFATM

Platform 1

Company Update, 11 July 2013

Ticon Ind Connection (TICON TB) Buy (Maintained) Property - Real Estate Target Price: THB24.0

Market Cap: USD519m Price: THB17.8

Trading At Discount To NAV With 6% Yield

Macro

2.00

Risks

2.00

Growth

2.00

Value

2.00

82

95

109

122

135

149

162

175

189

202

10

12

14

16

18

20

22

24

26

28

Ticon Ind Connection (TICON TB)

Price Close Relative to Stock Exchange of Thailand Index (RHS)

5

10

15

20

25

Ju

l-1

2

Se

p-1

2

No

v-1

2

Ja

n-1

3

Ma

r-1

3

Ma

y-1

3

Vol m

Source: Bloomberg

Avg Turnover (THB/USD 74.6m/2.49m

Cons. Upside (%) 43.8

Upside (%) 34.8

52-wk Price low/high (THB) 12.2 - 26.3

Free float (%) 57

Shareholders (%)

Rojana Industrial Park 20.6

Thai NVDR 7.9

Shariah compliant

Wanida Geisler 66 2862 9748

[email protected]

Forecasts and Valuations Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Total turnover (THBm) 2,784 1,997 5,557 7,385 8,217

Recurring net profit (THBm) 988 477 1,649 2,025 2,293

Recurring net profit growth (%) 34.0 (51.7) 245.7 22.8 13.3

Consensus EPS (THB) 1.64 1.59

EPS (THB) 1.22 0.60 1.56 1.59 1.60

DPS (THB) 1.00 0.40 1.00 1.05 1.20

Dividend Yield (%) 5.6 2.2 5.6 5.9 6.8

Return on average assets (%) 7.0 3.1 7.4 7.2 7.0

Return on average equity (%) 15.5 7.7 19.1 15.2 13.5

P/E (x) 14.6 29.9 11.4 11.2 11.1

P/B (x) 2.18 2.42 1.99 1.54 1.47

Net debt to equity (%) 91.9 133.6 120.4 72.6 85.8

Source: Company data, RHB estimates

Despite its unexciting performance in 1H13, we expect Ticon’s new rental space to grow significantly from 3Q13 onwards and its earnings to rebound sharply due to an asset divestment in 4Q13. The stock is now trading at a discount to its 2012 RNAV of THB21, with a handsome 6% yield. Assuming the gap between the book value and fair value of its investment assets still stands at 64% (on par with last year), the company’s RNAV for 2013 is estimated at THB24.

Weak new rental contracts. Ticon Industrial Connection (Ticon) signed

new rental contracts for 13,925 sq m of factory space and 33,840 sq m of warehouse space in 1H13, which were far below its full-year targets of 150k sq m of factory space and 200k sq m of warehouse space. Non-flood zones, particularly the Bangna and Chonburi areas, remain popular but demand for space in Ayuthaya (a flood zone) has yet to normalize.

Shining prospects for warehouses in 2H13. Despite the low volume

of new rental contracts signed in 1H13, Ticon revealed that it is about to ink new deals for 60k-70k sq m of warehouse space in 3Q13. An additional 50k sq m of new warehouse space is also currently under negotiation. Hence, we believe that its full-year target for new warehouse rental contracts is achievable. However, we note that the chances of the company hitting its target of renting out 150k sq m of ready-built factory space are slim.

To launch REITs in 4Q13. Ticon plans to launch a new REIT worth

THB6bn in 4Q13 with an estimated gross margin of 37%-38%. Moreover, it is looking to merge its two property funds – Ticon Property Fund (TFUND TB, NR) (market cap: THB13.8bn) and TPark Logistics Property Fund (TLOGIS TB, NR) (market cap: THB5bn) – in order to increase the total fund size and improve liquidity.

Huge landbank. Ticon increased its investment budget this year, from

THB8bn at the beginning of the year to THB10bn in 1Q13 and THB12bn recently, the majority of which will be allocated to acquire raw land in the non-flood zone. Its current landbank, at 3,800 rai (factory space: 800 rai, warehouses: 3,000 rai), will last for the next three to four years. Ticon has the largest landbank compared to its competitors such as WHA Corporation (WHA TB, NR), Amata Summit Ready Built Co Ltd, and Hemaraj Land and Development (HEMRAJ TB; NEUTRAL, FV:THB4.60) in terms of ready-built factories and warehouse business units.

Ticon Ind Connection (TICON TB) 11 July 2013


More conservative RNAV at THB24. Last year, the fair value of Ticon’s investment

assets was THB27bn, 64% higher than its book value. This implies its 2012 RNAV was at THB21/share.

In our March report titled Growing Along With Asset Value, we optimistically assumed that Ticon’s investment assets would increase by 20% from 2012 to reach a revalued net asset value (RNAV) of THB31 for 2013. However, its business had been slower than expected over the past six months. Ticon’s new contracts translated to a combined space of 48k sq m in 1H13, which was only 14% of its full-year target. Moreover, land acquisition and development costs have risen faster than expected as well, from THB8bn in early 2013 to THB12bn currently. To be more conservative, we estimated the gap between the book value and fair value of its investment assets (comprising land, rental assets, and investment portfolio) at 64%, which is on par with last year’s level. With that, we derived our 2013F RNAV at THB24.

We also note that Ticon’s 2013F P/BV has dipped to 1.5x, which is below its seven-year mean P/BV of 2x. The last time that its P/BV decreased to the 1.4x-1.5x level was in 4Q11, when severe floods damaged the majority of its rental properties in the Ayuthaya province. Its P/BV also dropped to the historic low of <1x during the US financial crisis in Nov 2008-July 2009.

Financial risks. Earlier, when the stock was trading above THB20, we expected the

majority of Ticon’s 245m warrants (conversion price: THB18.845/unit) to be converted at end-2013 before its expiry date on 31 Jan 2014. Now that the share price has slipped to THB17, which is modestly below its exercise price, there is a possibility that the warrants may not be converted. If this is the case, Ticon will not be able to receive THB4.5bn in proceeds from the conversion, which will hurt its financial position and may trigger another capital call.

Figure 1: Breakdown of rental spaces

end-2010 end-2011 end-2012 end-June 13

(sq m) (sq m) (sq m) (sq m)

Leased 400,195 592,867 518,948 581,908

Pre-leased 76,180 49,381 89,695 74,500

Available 135,919 40,250 187,938 287,213

Under Construction

52,550 195,431 183,707 220,125

Site Preparation

292,668 914,215 1,012,679 1,464,197

Total TICON factories and warehouses

957,512 1,792,144 1,992,967 2,627,943

Source: TICON, RHB estimates

Figure 2: Breakdown of occupancy rates

end-2010 end-2011 end-2012 End June-13

Factories 82% 93% 76% 73%

Warehouses 71% 97% 77% 67%

Factories & Warehouses

78% 94% 76% 70%

Source: TICON, RHB estimates



Financial Exhibits

Profit & Loss (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Total turnover 2,784 1,997 5,557 7,385 8,217

Cost of sales (1,282) (988) (3,204) (4,208) (4,653)

Gross profit 1,502 1,009 2,353 3,177 3,564

Other operating costs (300) (341) (418) (498) (579)

Operating profit 1,202 668 1,935 2,680 2,985

Operating EBITDA 1,472 989 2,324 3,183 3,515

Depreciation of fixed assets (270) (321) (389) (504) (530)

Operating EBIT 1,202 668 1,935 2,680 2,985

Net income from investments 207 161 169 188 244

Other recurring income 150 132 287 253 263

Interest expense (261) (267) (411) (473) (509)

Exceptional income - net (219) (59) (424) (558) (614)

Pre-tax profit 1,079 635 1,556 2,090 2,369

Taxation (258) (199) (260) (492) (548)

Profit after tax & minorities 821 436 1,296 1,598 1,821

Reported net profit 821 436 1,296 1,598 1,821

Recurring net profit 988 477 1,649 2,025 2,293


Cash flow (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Operating profit 1,202 668 1,935 2,680 2,985

Depreciation & amortisation 270 321 389 504 530

Change in working capital 16 (145) 402 34 150

Other operating cash flow 130 122 340 219 263

Operating cash flow 1,618 966 3,066 3,436 3,928

Interest paid (261) (267) (411) (473) (509)

Tax paid (258) (199) (260) (492) (548)

Cash flow from operations 1,099 500 2,395 2,471 2,871

Capex (469) (2,706) (3,512) (5,259) (2,925)

Other investing cash flow (230) (184) (1,502) (992) (1,071)

Cash flow from investing activities (699) (2,890) (5,014) (6,252) (3,996)

Dividends paid (537) (924) (156) (881) (1,199)

Proceeds from issue of shares 339 642 964 4,593 -

Increase in debt 706 2,583 1,844 (200) 1,800

Other financing cash flow 9 146 (27) 8 50

Cash flow from financing activities 517 2,447 2,625 3,520 651

Cash at beginning of period 113 1,030 1,087 1,093 832

Total cash generated 917 57 6 (261) (473)

Implied cash at end of period 1,030 1,087 1,093 832 359




Financial Exhibits

Balance Sheet (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Total cash and equivalents 1,030 1,087 1,093 832 359

Accounts receivable 14 107 119 120 120

Other current assets 79 62 126 140 140

Total current assets 1,123 1,256 1,338 1,092 619

Total investments 1,821 1,898 2,755 3,867 5,024

Tangible fixed assets 9,228 11,586 14,560 18,714 20,454

Total other assets 313 549 1,088 1,200 1,400

Total non-current assets 11,362 14,033 18,403 23,781 26,877

Total assets 12,485 15,289 19,741 24,874 27,497

Short-term debt 1,159 2,695 3,095 2,900 3,200

Accounts payable 113 329 666 700 800

Other current liabilities 329 44 185 200 250

Total current liabilities 1,601 3,068 3,946 3,800 4,250

Total long-term debt 5,014 6,061 7,505 7,500 9,000

Other liabilities 273 419 392 400 450

Total non-current liabilities 5,287 6,480 7,897 7,900 9,450

Total liabilities 6,888 9,548 11,843 11,700 13,700

Share capital 686 781 877 1,136 1,136

Retained earnings reserve 1,948 1,450 2,609 3,326 3,949

Other reserves 2,963 3,510 4,378 8,712 8,712

Shareholders' equity 5,597 5,741 7,864 13,174 13,797

Other equity - - 34 - -

Total equity 5,597 5,741 7,898 13,174 13,797

Total liabilities & equity 12,485 15,289 19,741 24,874 27,497


Key Ratios (THB) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Revenue growth (%) 17.3 (28.3) 178.3 32.9 11.3

Operating profit growth (%) 45.6 (44.4) 189.5 38.5 11.4

Net profit growth (%) 25.8 (46.9) 196.9 23.3 14.0

EPS growth (%) 23.1 (51.2) 162.7 1.6 1.0

Bv per share growth (%) 7.8 (9.9) 22.0 29.3 4.7

Operating margin (%) 43.2 33.5 34.8 36.3 36.3

Net profit margin (%) 29.5 21.9 23.3 21.6 22.2

Return on average assets (%) 7.0 3.1 7.4 7.2 7.0

Return on average equity (%) 15.5 7.7 19.1 15.2 13.5

Net debt to equity (%) 91.9 133.6 120.4 72.6 85.8

DPS 1.00 0.40 1.00 1.05 1.20

Recurrent cash flow per share 1.63 0.68 2.89 2.46 2.53




SWOT Analysis

Thailand’s largest developer/operator of ready-built factories and warehouses

Uses REITs and property funds as vehicles to monetize assets.

Its industrial estate (IE) in Ayuthaya will take time to regain investor confidence post-2011 floods

Sensitive to external and internal risks

Healthy FDI flowing into Thailand

Rental income from a standard three-year contract is a buffer against any downturn

New public infrastructure like high-speed trains and a flood protection system will restore the value of its Ayuthaya properties

Demand is slow in the Ayuthaya flood zone, where half of its rental properties are located

High gearing

-100%

-57%

-14%

29%

71%

114%

157%

200%

0

5

10

15

20

25

30

35

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

P/E (x) vs EPS growth

P/E (x) (lhs) EPS growth (rhs)

0%

4%

8%

13%

17%

21%

25%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

P/BV (x) vs ROAE

P/B (x) (lhs) Return on average equity (rhs)

Source: Company data, RHB estimates Source: Company data, RHB estimates

Company Profile Ticon Industrial Connection is Thailand's largest developer and operator of ready-built factories and warehouse spaces for rent.



Recommendation Chart

3

8

13

18

23

28

Jul-08 Oct-09 Jan-11 Apr-12

Price Close

NR

15.0

31.0

Recommendations & Target Price

Buy Neutral Sell Trading Buy Take Profit Not Rated

Source: RHB estimates, Bloomberg

Date Recommendation Target Price Price

2013-05-16 Buy 31.0 23.8

2013-03-15 Buy 31.0 25.3

2012-08-08 Buy 15.0 12.6

Source : RHB estimates, Bloomberg

7

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8

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