Central Pattana

Central Pattana Plc (CPN)

TP raised on new mall expansion
Event
- We increase our TP for CPN to Bt62.0 from Bt55.0 as we raise our EPS estimates 6-8% for 2013-15 to factor in two newly announced malls for 2014 and a better-than-expected gross margin from rental income. Retail rental rate growth remains strong with continuing mall expansion. Near-term catalyst will be its assets monetisation into its property fund. Maintain Outperform.
Impact
- Two new upcountry malls in 4Q13.  This year, CPN plans to open three new upcountry malls: Ubonratchathani (NLA of 26k sqm; Apr 2013); Chiangmai (55k sqm; Nov 2013); and Hatyai (68k sqm; Dec 2013). This will lift CPN’s total leasable area by 11% to 1.26m sqm in 2013.
- New mall locations for 2014-15. Next year, CPN will open at least two new malls, including CentralFestival Samui (19k sqm; 1Q14) and CentralPlaza Salaya (34k sqm, 3Q14). In addition, CPN will open its CentralWestGate Bangyai branch (75k sqm) in 2015. Anchor tenant will be a Central Department Store. At end-1Q13, CPN managed 21 malls (10 Bangkok, and 11 provinces), seven office towers and two residential projects.
- Assets monetisation in 3Q13. CPN plans to divest two malls worth a total of Bt8bn. The two malls are Central Airport Chiangmai (freehold asset) and Central Ramindra (leasehold asset; due to expire 2023) into CPN Retail Growth Leasehold (CPNRF TB, Bt19.80, Outperform; TP: Bt22.0) in 3Q13. Both malls have achieved 99-100% occupancy. We estimate gains of Bt3bn in 2H13. We have not factored this into our current earnings projection. To sustain the growth of CPNRF, CPN is keen to convert it into a REIT. It believes the benefit of higher yield from leverage of the new REIT regulation will compensate for the 10% withholding tax on dividends for institutional investors.
- Rising retail rental rate. In 1Q13, CPN’s effective retail rental rate stood at Bt1,499/sqm/month, up 4.8% YoY and 2.5% QoQ. According to management, CPN’s 1Q13 same store rental rate growth was at 7.0% YoY and 3.0% QoQ.
Earnings and target price revision
- We raise our net profit estimates 6-8% to factor in the two new malls announced for 2014 and higher GPM. We lift our TP to Bt62 from Bt55.
Price catalyst
- 12-month price target: Bt62.00 based on a DCF methodology.
- Catalyst: New mall expansion, rising rental growth and asset divestment
Action and recommendation
- Maintain Outperform with a new post 1-to-2 par split TP of Bt62.0 (from Bt55.0).