Central Pattana

Central Pattana Plc (CPN)
In line with our estimate
CPN reported a 3Q13 net profit of Bt1.46bn, down 49% YoY but up 14% QoQ. Stripping out an extra gain of Bt1.6bn from spinning off Central World Office to CPNCG last year, core profit rose 18% YoY, in line with our estimate.
Results highlights
Rental and service income increased 14% YoY to Bt4.9bn, led by 8% same-store rental growth and the openings of the Suratthani and Lampang malls in 4Q12 and the Ubon Ratchathani property in 2Q13. This same-store rental growth exceeded earlier management guidance of 6-7% and our assumption of 6.1%, due partly to a substantial discount reduction at Central World after H&M’s flagship store opened. The average rental rate increased to Bt1,513/sq.m/month, up by 4% YoY and 1% QoQ. The biggest rental increases were at Chiangmai, Central World and Khon Kaen.
Rental margin expanded to 46.1% in 3Q13 from 44.9% in 2Q13 on improving operating leverage. On a QoQ basis, rental margin declined 95 bps, due to costs for the leaseback of a long-term lease at Central Plaza Bangna.
SG&A expenses jumped 25% YoY to Bt742m on pre-opening expenses for new projects and additional business expansion costs, both domestic and overseas. On a QoQ basis, SG&A expenses declined 6%, due to the absence of one-off expenses for the grand opening event at Central Plaza Ubon Ratchathani in 2Q13.
Outlook
Core profit is expected to dip QoQ in 4Q13 because of high marketing expenses during the festive season and grand opening expenses for Central Festival Chiangmai (which opens today) and Central Festival Hadyai (will open on Dec 14). However, 4Q13 net profit is likely to be the highest of the year, boosted by an extra gain from spinning off Central Chiangmai Airport Plaza to CPNRF. Mangement confirmed that the asset will be sold to the property fund in December and that it is valued at about Bt10bn. We anticipate that CPN will book a net spin-off gain of around Bt5bn.
What’s changed?
Our earnings forecast and YE14 target price stand unchanged for the moment. Our profit projection would be subject to an 84% upgrade if the planned spin-off of Chiangmai Airport Plaza were to be executed.
Recommendation
CPN remains our favorite play in the Consumer sector. The company has proved to be resilient to the consumption spending slowdown, while there is scope for upside to our earnings projection. Our BUY rating stands with a YE14 target price of Bt61.