Central Pattana

Central Pattana Plc (CPN)
What’s new?
We accompanied CPN’s EVP of Finance, Ms Naparat Sriwanvit, to meet with local institutional investors last week. The meetings mostly covered CPN’s operations amidst the current consumption slowdown, new project updates and spin-off plans. The information we grabbed from the meetings strengthened our confidence in our BUY rating and our belief in the stock’s value as a long-term play.
Rental rates keep increasing
The consumption slowdown appears to have had only a minimal impact on CPN’s performance. Customer traffic to the shopping malls has been increasing and has met the firm’s target. Spending in the stores has remained strong, particularly at mid-range to high-end restaurants and fashion shops. Only furniture and electrical appliance outlets have seen sales declines (but not sharp enough to trigger rental discounts). The occupancy rate remains high at 97%, even though some areas of Central World and Bangna are under renovation. As such, the target of increasing the mean same-store rental rate by 6-7% this year looks achievable.
Accelerating expansion
CPN confirmed it will open two new malls in 4Q13 (Chiangmai in Nov and Hadyai in Dec). Next year, three new properties are slated to open (Samui in March, Salaya in July and Rayong in 4Q14). Then the expansion will become even more aggressive. The firm plans to increase the number of new shopping malls it opens to four in FY15 and five in FY16, in which case its retail leasable area would rise by 8% in FY14, by 12% in FY15 and by 14% in FY16.
Undisclosed projects could add Bt8 to our target price
Of the 12 new projects planned for FY14-16, we have factored in only four domestic developments that have already been announced in detail. We have yet to add the I-City project in Malaysia, as there is some risk of it being delayed. Despite that, our model still suggests strong 3-year CAGRs of 15% for revenue and 21% for profit, FY14-16. If we were to factor in those eight malls, our 3-year earnings CAGR assumption would be 27% and our YE14 target price would increase to Bt69 from Bt61.
Spin-off likely in 4Q13
CPN confirmed that it still plans to spin off Central Plaza Chiangmai Airport to CPNRF. The transaction was previously set to take place in October, but the sharp fall in CPNRF’s unit price during August-September caused a delay to increasing the property fund’s capital. However, recent improved market sentiment and a rebound in CPNRF’s unit price should enable the spin-off plan to resume. Based on a transaction price of Bt8-10bn and CPN maintaining its stake in CPNRF at 27.8%, the net gain should be in the Bt3.8-4.9bn range, which would top up our FY13 earnings forecast by 62-80%. After the spin-off, net gearing would fall to only 0.2x.