Central Pattana

Central Pattana Plc

Investment thesis
We think the recent dive in CPN’s share price presents a good opportunity to take or increase positions. The stock currently trades at 0.5SD below its 12m-forward mean PER of 25.4x, which we believe is an attractive entry point. The potential delay to spinning off an asset to CPNRF would have only a negligible impact on fundamental value. CPN’s balance sheet and cash flows remain strong enough to comfortably support its entire current pipeline of projects without further spin-offs. Moreover, the firm stands to be only insignificantly impacted by the current consumption slowdown. Our BUY call stands with a YE13 target price of Bt60—our top pick within Consumer space.
Planned asset spin-off likely to be delayed
The unit price of CPNRF declined on weak market sentiment, which caused CPN to reconsider its spin-off plan. If CPNRF were to issue new units at a price of Bt14.50 (yesterday’s close price was Bt15), CPN would have to sell Central Plaza Chiangmai Airport (CPCA) to the fund at a price of about Bt7.8bn (a 25% discount to appraised value of Bt10.34bn) in order that CPNRF could generate a large enough accretive yield. We don’t think CPN would sell the property for less than its appraised value, so would opt to delay the asset monetization until CPNRF’s unit price rose above Bt19.
Note that if the spin-off didn’t go ahead by YE13, the property would have to be reappraised in compliance with SEC regulations. Unit-holder approval to increase CPNRF’s capital remains effective through to July 2014.
The delay would have only a negligible impact on fundamentals
Given the uncertainty surrounding the plan, we have removed the spin-off gain of Bt5bn from our model. As a result, our FY13 net profit forecast plunges to Bt6.2bn from Bt11.2bn, but our FY14-15 earnings forecasts rise by 2% and 3%, respectively, due to the continued direct contribution of CPCA to the income statement. Our target price remains unchanged, as we had assumed that the transaction price would equal DCF value. Debt should remain at a comfortable level. Even factoring in CAPEX for all undisclosed projects, net gearing would peak at only 0.6x—far below CPN’s policy cap of 1.0x.
No impact from consumption slowdown so far
Management said that the current consumption slowdown has yet to impact on any of the firm’s properties. Both traffic and spending in shopping centers have remained solid—customers are dominated by mid- to high-income demographics, where purchasing power remains strong. Even if spending at CPN’s malls were to decline somewhat, the impact on its earnings would be limited, as fixed-rent and long-term lease contracts comprise 48% and 27%, respectively, of total space. The downside risk to revenue-sharing contracts (25% of total space) would also be limited, thanks to minimum guarantees.