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Japan FTA Cheers Thai Developers
A free trade agreement (FTA) between Japan and Thailand has brightened the outlook for Thai industrial developers as Japanese firms seek to build or expand operations in the country.
Earnings of industrial and factory developers like Amata Corp, Hemaraj Land, Rojana Industrial and Ticon Industrial would outperform the market with the expected inflow of Japanese money.
'They are among our top picks in the region. The sector by itself will see faster growth compared to other sectors in Thailand,' said Sean Darby, head of regional strategy at Nomura International. 'Their visibility of earnings is much better than a lot of other companies within the region.'
In September 2005, the two countries reached tentative agreement on a bilateral trade deal covering lower tariffs for steel, auto and food sectors, with an official signing expected sometime early next year. The deal comes as Japan's economic recovery seems to be taking hold, and analysts said that would encourage more Japanese firms to bring cheap steel to make cars for sale in Thailand and for export.
Japan is the largest foreign investor in Thailand, where its direct investment from April 2005 to March 2006, is expected to top the previous year's US$1.2 billion which was a 6-year high, an analyst at Bangkok's Kasikorn Research Centre said.
The research house said finalising FTA agreements may encourage more Japanese companies to invest in Thailand to benefit from reduced tax rates for re-exported goods to Japan, or to other markets that have FTAs with Thailand. Optimism has helped boost share prices so far this year, led by Ticon, whose stock has risen about 55 per cent and Amata Corp, up about 40 per cent. The overall stock market is up about 4.9 per cent.
Mr Darby said Amata Corp stood to benefit from increased Japanese direct investment. 'Its business is simple to execute but has natural barriers to entry in terms of location and capital,' he said.
Amata Corp, which sells plots at industrial estates close to key ports and Bangkok's new international airport, was already seeing spiralling Japanese demand ahead of the official signing of the FTA, senior vice-president Viboon Kromadit said.
Land sales by Amata, whose Japanese clients account for 60 per cent of its revenues, doubled in the second quarter, partly because it sold a large plot of land to Sumitomo Metal Industries of Japan, Mr Viboon said.
The FTA prodded Japanese manufacturers into making decisions to buy, he said.
'They are investing ahead to wait for tax benefits of the FTA and partly because Thailand is already an auto manufacturing base of car makers,' he said. 'Once tax benefits of the FTA are effective, we should see a slew of plant relocations' after the deal is signed.
Mr Viboon said he expected land sales by Amata to double this year to 5.5 billion baht.
A flood of small to medium size manufacturers in the auto-parts industries
has boosted the factory lease businesses of Hemaraj, Amata, Ticon and Thai
Factory Development.