Central Pattana

Central Pattana Plc (CPN)
What’s new?
We went on the road with CPN’s SVP of Finance, Ms Naparat Sriwanvit, to meet investors in Singapore. Most were impressed with the firm’s record and outlook. Half of the funds we met were long-term holders who mostly have CPN at maximum levels, so their scope to expand positions looks limited. The other half still-under own CPN, but might not add positions in the short-term, as the share price has rallied fast recently. We think buying interest will rise after the firm posts impressive 3Q12 results on Nov 15.
More aggressive expansion plan
New information we grabbed from the roadshow is that the plan to open three new shopping malls a year may last only until 2014. From 2015 onward, CPN plans to debut 4-5 locations a year, as it wants to maintain the current growth rate from a higher base. Annual CAPEX from FY15 onward should rise to Bt13-16bn. If we were to factor in all projects according to CPN’s plans, net gearing would range 1.2-1.3x during FY13-16, which would be above its policy ceiling of 1.0x. We think the firm would have to spin off assets worth around Bt15bn during FY13-16 in order to maintain net gearing below 1.0x.
To spin off Chiangmai and Ramindra in FY13, then hotels in FY14
Besides Chiangmai to be monetized in FY13, CPN may add Ramindra to the tranche. The total short-term retail and common area would be 70-75K sq.m and the total asset value should be in the region of Bt7-8bn. Based on a 27.8% holding in CPNRF, we estimate a net after-tax gain of Bt3.8bn to be booked in FY13. Next year, CPN plans to spin off hotels at Pattaya Beach and Udonthani. The total asset size should be in the Bt3.6-4.0bn range and the net after-tax gain  in the region of Bt0.7-1.0bn.
Better-than-expected performances by new malls
Management said the achieved rental rates at Suratthani (opened on Oct 11) and Lampang (to open on Nov 30) were about 10% higher than the budget. The occupancy rates are very high. Space at Suratthani is fully booked, while leasing progress at Lampang is 96%.
Key short-term challenge is electricity bill
Normally, CPN can pass through higher electricity prices to tenants via service fees, but this year it has to bear some of the cost rise, as: 1) the FT charge rose during the year, while service fees can be adjusted only once a year and 2) the entire 15% increase in the FT charge cannot be passed through at once. Despite that, costs have remained controllable and we expect the firm to continue to deliver strong performances.
Strong 3Q12 numbers to be announced
On Nov 15, we expect CPN to report an impressive net profit of Bt2.6bn, up by 575% YoY and 124% QoQ. Excluding spin-off gains of Bt1.4bn, core earnings would be Bt1.2bn, up 202% YoY and flat QoQ. Strong rental growth, new projects added and the low base effect were the key drivers.