IMPACT Growth REIT

IMPACT TB Outperform
Higher ARR outlook on economic growth
Target Price Bt17.20
We reiterate our Outperform rating on IMPACT and lift our target price to
Close Price (16/02/2018) Bt 15.70 Bt17.2 from Bt15.6 as we revise up our FY2017-19E earnings forecasts. We
Upside % 9.55 expect an improving economy will enable IMPACT to raise rental rates in
Valuation DDM FY2018-19E, and thus we raise our average rental rate (ARR) assumptions
Sector Property Fund for FY2017-19E by 2-5%, and accordingly FY2017-19E core earnings by 8-
Market Cap Btm 23,275 13%. Our economic view is based on our house economist’s expectation for
30-day avg t/o Btm 10.29 GDP growth to accelerate to 4.0%/4.2% in 2018/19E from 3.2%/4.0% in
No. of shares m 1,483 2016/17E. We estimate a dividend yield of 5.5%/5.9% for FY2018/19E (vs
CG Scoring N/A peer average 5.0%) and a widening gap between IMPACT’s dividend yield
Anti-Corruption Indicator N/A and 10-year bond yield in FY2018-19E, which should provide a cushion
Investment fundamentals against the negative impact on fund prices from an expected higher 10-year
Year end Mar 31 FY2016 FY2017E FY2018E FY2019E bond yield in 2018-19E.
Company Financials
Revenue (Btmn) 1,903 2,235 2,393 2,543 Investment highlights
Core profit (Btmn) 992 1,231 1,344 1,442 ► Better economic conditions to support a rental rate increase. IMPACT
Net profit (Btmn) 999 1,327 1,431 1,541 lowered prices in FY2015 (Apr 2015-Mar 2016) that resulted in full-year FY2015 ARR
Net EPS (Bt) 0.67 0.90 0.97 1.04
decreasing by 3%. Prices were lowered in an effort to maintain existing clients amid
DPS (Bt) 0.66 0.81 0.86 0.93
weak economic (GDP) growth of 0.8% in 2014. Our house economist expects
BVPS (Bt) 10.81 10.89 11.00 11.11
Net EPS growth (%) -16.25 32.88 7.86 7.69
Thailand’s GDP growth to accelerate to 4.0%/4.2% in 2018/19E from 3.2%/4.0% in
ROA (%) 4.87 6.47 6.94 7.41 2016/17E. We believe this positive outlook will enable IMPACT to negotiate with
ROE (%) 6.22 8.25 8.82 9.40 clients to raise rates. We thus assume ARR to increase by 5%/4% in FY2018/19E to
Net D/E (x) 0.20 0.20 0.20 0.19 Bt65/Bt67.7 per sqm/day, which should be a key earnings growth driver in both
Valuation years.
P/E (x) 22.27 17.54 16.26 15.10
► Revising up FY2017-19E earnings forecasts. We revise up our FY2017-19E
P/BV (x) 1.39 1.44 1.43 1.41
core earnings estimates by 8%/11%/13% to Bt1.23bn/Bt1.34bn/Bt1.44bn to reflect
EV/EBITDA (x) 22.03 19.15 17.67 16.45
Dividend yield (%) 4.40 5.16 5.48 5.92
our higher ARR assumptions and better-than-expected ARR in 3QFY17. As higher
rental rates should result in a higher GPM with rental area to remain the same, we
raise our FY2017-19E GPM assumption by 80-110 bps to 87.8%/87.9%/88.1%, and
IMPACT TB rel SET performance thereby expect FY2018/19E core earnings growth of 9%/7%.
THB IMPACT TB [LHS] Rel SET [RHS] Index
► Attractive dividend to mitigate pressure from rising bond yield. Although
18
the 10-year bond yield is likely to increase in FY2018-19E and pressure prices of
100 fixed income instruments such as REITs, this should be offset by 1) higher FY2018-
16
19E dividend yields of 5.5%/5.9% vs the average dividend yield of other listed
90 property funds and REITs of 5%; 2) a widening gap between IMPACT’s dividend
14
yield and forecasted 10-year bond yield of 2.8%/3.0% in FY2018/19E from
1.7%/2.7% in FY2016/17E; and 3) an expected incremental dividend yield of 32
12 80
bps/45 bps in FY2018/19E, which would be a faster increase than 10-year bond yield
Feb-17 May-17 Aug-17 Nov-17
by 18 bps/year in the same period based on the 10-year bond yield forecast of
Source: SET Smart Kasikorn Bank Pcl. (KBANK TB, Bt228, Not rated) for 2018E and Bloomberg
(all figures in THB unless noted)
consensus for 2019E.
► 4QFY17E earnings to surge YoY. We expect 4QFY17E (end-March 2017) core
earnings growth of 30-35% YoY driven by new events such as Thailand LGBT Expo,
Smart Senior Destination Fair, and ASEAN Logistics & Purchasing Expo, and a higher
Analyst number of international concerts such as Super show 7 and Imagine Dragon Evolve
Korakot Sawetkruttamat World Tour. 4QFY17E earnings are likely to be weaker QoQ due to the absence of
korakot.sa@kasikornsecurities.com major events held in 3QFY17, such as Motor Expo and OTOP City.

Valuation
19 February 2018 ► We raise our DDM-based target price to Bt17.2 from Bt15.6 following our FY2017-
Kasikorn Securities Public Company Limited 19E earnings upgrades. Our target price implies a 5.0% dividend yield for FY2018E,
which is in line with the average dividend yield of other property funds and REITs.

19 February 2018 1 IMPACT Growth REIT

 Investment highlights
Business outlook
Better economic conditions to support rental rate increase
IMPACT maintained its ARR in FY2014 and reduced it by 3% in FY2015 in an effort to maintain clients
due to weak GDP growth of 0.8% in 2014. As our house economist expects Thailand’s GDP growth to
accelerate to 4.0%/4.2% in 2018/19E from 3.2%/4.0% in 2016/17E, we believe improving economic
conditions will enable IMPACT to negotiate with its clients to raise ARR in FY2018-19E. As a result, we
estimate ARR to increase by 5%/4% in FY2018/19E to Bt65/Bt67.7 per sqm/day. A higher ARR would be
the key earnings growth driver in FY2018-19E. As seen in Fig 2, IMPACT’s ARR jumped significantly in
3QFY17, which corresponded with accelerating GDP growth in 3QFY16-2QFY17. In contrast, during
2QFY15 and 3QFY15 IMPACT’s ARR declined by 11-14% after weak GDP growth in 1QFY14-3QFY14 of
1-2%.

Fig 1 Expect ARR to increase in FY2017-19E Fig 2 Quarterly ARR and GDP growth

ARR Growth (RHS) ARR growth GDP growth (RHS)

Bt/sqm/day (%) (%) (%)
70 6% 25% 6%
68 5% 20%
5%
66 4% 15%
64 3% 10% 4%
62 2% 5%
3%
60 1% 0%
58 0% -5% 2%
-10%
56 -1% 1%
-15%
54 -2%
-20% 0%
52 -3%
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
50 -4%
FY2014 FY2015 FY2016 FY2017E FY2018E 2019E
Source: IMPACT, KS Research Source: IMPACT, NESDB, KS Research

In terms of occupancy rate (OCR), we believe improving economic conditions will spur an increase in
events. For example, some retailers may arrange more trade fairs to boost sales during a period of
improving consumption compared to during weak consumption sentiment. As a result, we expect
IMPACT’s OCR to increase gradually from 51% in FY2017E to 53% in FY2019E.

Fig 3 OCR to gradually increase in FY2017-19E Fig 4 Quarterly OCR and GDP growth

(%) OCR increase GDP growth (RHS)

(%) (%)
56% 55% 15% 6%
54% 53% 10%
52% 5%
52% 51% 5%
50% 0% 4%
50%
-5%
48% 3%
-10%
46% -15% 2%
44%
-20%
44% 1%
-25%
42% -30% 0%
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17

40%
FY2014 FY2015 FY2016 FY2017E FY2018E 2019E

Source: IMPACT, KS Research Source: IMPACT, NESDB, KS Research

19 February 2018 2 IMPACT Growth REIT

 Earnings revisions
Raising FY2017-19E earnings forecasts
We revise up our FY2017-19E core profit forecasts by 8%/11%/13% to Bt1.23bn/Bt1.34bn/Bt1.44bn to
reflect our increased ARR assumption by 2-5% in FY2017-19E on expected improving economic conditions
in 2018-19E and better-than-expected ARR in 3QFY17. As increasing rental rates would also result in a
higher GPM as IMPACT would generate higher income from the same amount of rental area, we raise
our GPM esimates for FY2017-19E by 80-110 bps to 87.8%/87.9%/88.1%.

Fig 5 FY2017-19E earnings forecast revisions

Unit: Btmn. FY2017E FY2018E FY2019E

Profit and loss statements New Previous %Change New Previous %Change New Previous %Change

Service revenue 2,235 2,186 2.2 2,393 2,285 4.7 2,543 2,388 6.5

Cost of services 273 284 (3.8) 289 297 (2.7) 302 309 (2.4)

Gross profit 1,962 1,903 3.1 2,104 1,988 5.8 2,241 2,079 7.8

SG&A expenses 585 607 (3.7) 614 627 (2.1) 644 650 (0.9)

Operating profit 1,387 1,307 6.1 1,500 1,373 9.3 1,607 1,441 11.6
EBITDA 1,387 1,307 6.1 1,500 1,373 9.3 1,607 1,441 11.6

EBIT 1,483 1,445 2.6 1,587 1,559 1.8 1,706 1,641 4.0
Core profit 1,231 1,146 7.5 1,344 1,212 10.9 1,442 1,271 13.4

Net profit 1,327 1,284 3.4 1,431 1,398 2.4 1,541 1,471 4.8
Key assumptions

Occupancy rate (%) 51.3 51.3 0.0 52.4 52.1 0.4 53.1 52.4 0.7
Average rental rate (Bt/sqm/day) 61.9 60.5 2.3 65.0 62.3 4.3 67.7 64.2 5.4
GPM (%) 87.8 87.0 0.8 87.9 87.0 0.9 88.1 87.0 1.1
Source: KS Research

Our revisions result in FY2018-19E core earnings growth of 9%/7% from expected core earnings growth
of 24% in FY2017E. We therefore expect IMPACT to pay a dividend of Bt0.81/Bt0.86/Bt0.93 for FY2017-
19E, representing yields of 5.2%/5.5%/5.9% based on the current share price.

Fig 6 FY2018-19E core profit to continue to grow Fig 7 Dividend yield to increase to 6.0% in FY2019E

Core profit Growth (RHS) DPS Dividend yield (RHS)

Btmn (%) Bt/shr (%)
1500 30% 1.00 6.50
25% 0.95
1400
20% 0.90 6.00
1300 15% 0.85

1200 10% 0.80 5.50

5% 0.75
1100 0% 0.70 5.00
1000 -5% 0.65
-10% 0.60 4.50
900
-15% 0.55
800 -20% 0.50 4.00
FY2015 FY2016 FY2017E FY2018E FY2019E FY2015 FY2016 FY2017E FY2018E FY2019E
Source: IMPACT, KS Research Source: IMPACT, KS Research

19 February 2018 3 IMPACT Growth REIT

 Dividend yield
Attractive dividend to mitigate pressure from a rising bond yield
Although the 10-year bond yield is likely to increase in FY2018-19E and pressure prices of fixed income
instruments such as REITs, we expect this could be offset by:

1) an attractive FY2018-19E dividend yield of 5.5%/5.9% vs an average dividend yield of property

funds and REITs listed on the SET of 5%;

2) an expected widening gap (dividend yield gap) between IMPACT’s dividend yield and the
forecasted 10-year bond yield to 2.8%/3.0% in FY2018-19E from 1.7-2.7% in FY2016-17E. This
yield gap is higher level the two-year historical average of 2.5%; and

3) an expected incremental dividend yield of 32 bps/45 bps in FY2018-19E, which is a steeper

increase of the 10-year bond yield by 16-20 bps/year in the same period.

Our assumption of Thailand’s 10-year government bond yield is based on KBANK’s forecasted rise in bond
yield to 2.7% at end-2018 and the Bloomberg consensus forecast for a continued increase to 2.95% at
end-2019.

Fig 8 10-year bond yield to trend up in 2018-19E Fig 9 Widening dividend yield gap in FY2017-19E

(%) (%) Dividend yield 10-year bond yield

3.0% 3.0% 7.0%

2.9% 6.0%
2.8%
2.7% 5.0%
2.7% 2.6% 3.0%
4.0% 3.0% 2.8%
2.7%
2.6% 2.5% 1.7%
2.5% 3.0%
2.5%
2.0%
2.4%
2.3% 1.0%

2.2% 0.0%
2015 2016 2017E 2018E 2019E FY2015 FY2016 FY2017E FY2018E FY2019E

Source: KBANK, Bloomberg, KS Research Source: IMPACT, KBANK, Bloomberg, KS Research

Fig 10 Historical 10-year bond yield vs IMPACT’s DY Fig 11 Two-year historical average of DY gap

(%) 10yrs bond yield IMPACT's trailing dividend yield (%)

6.0% 4.0%
5.5%
3.5%
5.0%
4.5% 3.0%
4.0% Average = 2.48%
2.5%
3.5%
3.0% 2.0%
2.5%
2.0% 1.5%
1.5% 1.0%
Jan-17

Jan-18
Jul-16

Sep-16

Mar-17
Nov-16

Jul-17

Sep-17

Nov-17
May-16

May-17

Dec-16

Dec-17
Jul-16

Jan-17

Mar-17
Apr-17

Jan-18
Oct-16
Sep-16

Feb-17

Jul-17
Nov-16

Sep-17
May-16
Jun-16

Aug-16

May-17
Jun-17

Aug-17

Oct-17
Nov-17

Source: Bloomberg, SETSMART, KS Research Source: SETSMART, Bloomberg, KS Research

19 February 2018 4 IMPACT Growth REIT

 Short-term earnings outlook
Expect 4QFY17E earnings to surge YoY but weaken QoQ
We expect 4QFY17E core earnings in a range of Bt240mn – Bt250mn, or strong growth of 30-35% YoY
driven by new events such as Thailand LGBT Expo, Smart Senior Destination Fair, and ASEAN Logistics
& Purchasing Expo, and a higher number of international concerts such as Super show 7 and Imagine
Dragon Evolve World Tour. However, 4QFY17E earnings are likely to weaken QoQ due to due to the
absence of big events held in 3QFY17 such as Motor Expo and OTOP City.

Fig 12 Quarterly revenue Fig 13 Quarterly core profit

Revenue Growth YoY (RHS) Core profit Growth YoY (RHS)

Btmn (%) Btmn (%)
700 30% 400 50%
350 40%
600 20%
30%
500 10% 300
20%
250 10%
400 0%
200 0%
300 -10% -10%
150
200 -20% -20%
100
-30%
100 -30% 50 -40%
0 -40% 0 -50%
4QFY17E
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17

4QFY17E
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
Source: IMPACT, KS Research Source: IMPACT, KS Research

Fig 14 4QFY17E event highlights

Concerts

New events

Regular events

Source: IMPACT, KS Research

19 February 2018 5 IMPACT Growth REIT

 Valuation and recommendation
Reiterate Outperform and raise target price to Bt17.2 from Bt15.6
We maintain our Outperform rating on IMPACT and raise our DDM-based target price to Bt17.2 from
Bt15.6 to reflect our raised FY2017-19E core earnings forecasts by 8-13%. Our new target price implies
a FY2018E dividend yield of 5.0%, which is in line with the average dividend yield of other property funds
and REITs listed on the SET.

Our DDM-based target price is based on a discount rate of 8% with a terminal growth rate of 2%. At the
stock’s latest closing price, IMPACT offers an attractive total shareholder return of 15% (capital gain 10%,
dividend yield 5%).

Fig 15 Expect FY2017-19E dividend yield of 5.2%-6.0% Fig 16 Quarterly dividend yield since fund’s inception

(%) Bt/shr
6.5% 0.24 0.23
0.22
5.9% 0.22 0.21
6.0%
0.20
5.5% 5.5% 0.20 0.19 0.19 0.19
5.5%
5.2% 0.18 0.18 0.17 0.17 0.17
0.18
5.0%
0.16 0.15
4.4%
4.5%
0.14
4.0% 0.12
3.5% 0.10
3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17
3.0%
FY2015 FY2016 FY2017E FY2018E FY2019E

Source: Company Data, KS Research Source: Company Data, KS Research

19 February 2018 6 IMPACT Growth REIT

 Year-end 31 Mar
Income Statement (Btmn) FY2015A FY2016A FY2017E FY2018E FY2019E Cashflow (Btmn) FY2015A FY2016A FY2017E FY2018E FY2019E
Revenue 2,114 1,903 2,235 2,393 2,543 Net profit 1,192 999 1,327 1,431 1,541
Cost of sales and services -291 -249 -273 -289 -302 Depreciation & amortization 0 0 0 0 0
Gross Profit 1,823 1,654 1,962 2,104 2,241 Change in working capital 39 99 -139 3 1
SG&A -479 -511 -585 -614 -644 Others 164 153 60 69 66
Other income 12 9 10 10 10 CF from operation activities 1,395 1,251 1,248 1,503 1,608
EBIT 1,380 1,158 1,483 1,587 1,706 Capital expenditure 0 0 0 0 0
EBITDA 1,356 1,152 1,387 1,500 1,607 Investment in subs and affiliates 0 0 0 0 0
Interest expense -187 -160 -156 -156 -165 Others -91 -45 107 -12 0
Equity earnings 0 0 0 0 0 CF from investing activities -91 -45 107 -12 0
EBT 1,192 999 1,327 1,431 1,541 Cash dividend -1,090 -1,082 -1,200 -1,275 -1,378
Income tax 0 0 0 0 0 Net proceeds from debt -165 -172 -160 -160 -170
NPAT 1,192 999 1,327 1,431 1,541 Capital raising 0 0 0 0 0
Minority Interest 0 0 0 0 0 Others 0 0 0 0 0
Core Profit 1,169 992 1,231 1,344 1,442 CF from financing activities -1,255 -1,254 -1,361 -1,435 -1,548
Extraordinary items 23 6 96 87 99 Net change in cash 50 -49 -5 56 60
FX gain (loss) 0 0 0 0 0 Key Statistics & Ratios
Reported net profit 1,192 999 1,327 1,431 1,541 Per share (Bt)
Balance Sheet (Btmn) Reported EPS 0.80 0.67 0.90 0.97 1.04
Cash & equivalents 255 206 201 257 316 Core EPS 0.79 0.67 0.83 0.91 0.97
ST investments 500 552 400 400 400 DPS 0.77 0.66 0.81 0.86 0.93
Accounts receivable 129 82 171 184 195 BV 10.87 10.81 10.89 11.00 11.11
Inventories 0 0 0 0 0 EV 16.02 17.12 17.92 17.88 17.83
Other current assets 7 6 5 5 5 Free Cash Flow 0.94 0.84 0.84 1.01 1.08
Total current assets 891 846 777 845 916 Valuation analysis
Investment in subs & others 0 0 0 0 0 Reported P/E (x) 17.28 22.27 17.54 16.26 15.10
Fixed assets-net 19,619 19,619 19,760 19,859 19,958 Core P/E (x) 17.63 22.41 18.90 17.31 16.14
Other assets 8 7 5 5 5 P/BV (x) 1.28 1.39 1.44 1.43 1.41
Total assets 20,518 20,472 20,542 20,709 20,879 EV/EBITDA (x) 17.51 22.03 19.15 17.67 16.45
Short-term debt 0 0 0 0 0 Price/Cash flow (x) 14.77 17.78 18.64 15.49 14.48
Accounts payable 97 71 63 67 69 Dividend yield (%) 5.50 4.40 5.16 5.48 5.92
Other current assets 413 481 437 448 458 Profitability ratios
Total current liabilities 510 552 500 515 527 Gross margin (%) 86.24 86.92 87.79 87.92 88.13
Long-term debt 3,900 3,895 3,891 3,886 3,881 EBITDA margin (%) 64.14 60.54 62.05 62.68 63.19
Other liabilities 0 0 0 0 0 EBIT margin (%) 65.24 60.88 66.33 66.30 67.09
Total liabilities 4,410 4,447 4,391 4,401 4,408 Net profit margin (%) 56.39 52.49 59.37 59.80 60.60
Paid-up capital 15,715 15,715 15,715 15,715 15,715 ROA (%) 5.83 4.87 6.47 6.94 7.41
Share premium 0 0 0 0 0 ROE (%) 7.43 6.22 8.25 8.82 9.40
Reserves & others, net 0 0 0 0 0 Liquidity ratios
Retained earnings 394 310 437 594 757 Current ratio (x) 1.75 1.53 1.55 1.64 1.74
Minority interests 0 0 0 0 0 Quick ratio (x) 1.73 1.52 1.54 1.63 1.73
Total shareholders' equity 16,108 16,025 16,151 16,308 16,471 Leverage Ratios
Total equity & liabilities 20,518 20,472 20,542 20,709 20,879 Liabilities/Equity ratio (x) 0.27 0.28 0.27 0.27 0.27
Key Assumptions Net debt/EBITDA (x) 2.32 2.72 2.37 2.15 1.97
Occupancy rate (%) 54.4 46.2 51.3 52.4 53.1 Net debt/equity (x) 0.20 0.20 0.20 0.20 0.19
Average rental rate (Bt/sqm/day) 56.4 59.2 61.9 65.0 67.7 Int. coverage ratio (x) 7.37 7.26 9.52 10.20 10.34
Rental rate growth (%) -3.2 4.9 4.6 5.0 4.2 Growth
Revenue (%) n.a. -10.02 17.49 7.07 6.27
EBITDA (%) n.a. -15.07 20.42 8.15 7.14
Reported net profit (%) n.a. -16.25 32.88 7.86 7.69
Reported EPS (%) n.a. -16.25 32.88 7.86 7.69
Core profit (%) n.a. -15.13 24.10 9.19 7.25
Core EPS (%) n.a. -15.13 24.10 9.19 7.25
Source: Company, KS estimates

19 February 2018 7 IMPACT Growth REIT

 Analyst Certification

The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject security(ies) and subject company(ies); and
no part of the compensation of the research analyst(s) was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in
the report.

Investment Ratings
Outperform: Expected total return of 10% or more within a 12-month period
Neutral: Expected total return between -10% and 10% within a 12-month period
Underperform: Expected total return of -10% or worse within a 12-month period

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that date. KS does not confirm nor certify the accuracy of such survey result.
Structured Notes and Derivative Warrants Disclaimer
KS may be the issuer of structured notes on these securities.
KS acts as market maker and issuer of Derivative Warrants (“DWs”) on the underlying stocks listed below. Investors should carefully read the details of the DWs
in the prospectus before making any investment decisions.
DWs Underlying Stocks: AAV, ADVANC, AMATA, AOT, BA, BANPU, BBL, BCH, BCP, BDMS, BEAUTY, BEM, BH, BLA, BLAND, BTS, CBG, CENTEL, CHG, CK, CKP,
CPALL, CPF, CPN, DELTA, DTAC, EA, EPG, GFPT, GL, GLOW, GPSC, GUNKUL, HMPRO, INTUCH, ICHI, IRPC, ITD, IVL, KCE, KTB, KTC, LH, LPN, MAJOR, MEGA,
MINT, MTLS, PLANB, PSH, PTG, PTT, PTTEP, PTTGC, QH, ROBINS, SAWAD, SCB, SCC, SIRI, SPALI, SPRC, STEC, STPI, TASCO, TCAP, THAI, THCOM, TKN, TMB, TOP,
TPIPL, TRUE, TTA, TU, TVO, UNIQ, VGI, WHA and WORK

19 February 2018 8 IMPACT Growth REIT