Central Pattana

Central Pattana Plc (CPN)
- Opening 3-4 new shopping malls a year to reach target of 35 malls in 2016
CPN's business plan in next three years (2014-2016) aims to boost revenue
by 15%. CPN plans to open averagely 3-4 shopping centers a year,
increasing the number of shopping centers under CPN's management from
23 in end-2013 to 35 within 2016, with total leasable area of 1.75 million
sqm, an increase of 11% a year. There are five new projects that would
surely be opened within 2016: three projects at Samui, Salaya and Rayong
that will be opened in 2014, Central West Gate Bang Yai currently under
construction that might be opened in 2Q15, and I-City in Malaysia (a joint
venture with I-Berhad; CPN holds 60% stake) that would be opened in
4Q16. Also, CPN is conducting a feasibility study for the second project in
Malaysia. CPN has set an investment budget of B12-14bn per year for
development of existing and new shopping centers; B8-10bn per year from
internal cash flow and the rest from borrowings and money from asset sale
to the property fund. For the fire case, CPN preliminarily won the insurance
claim; Deves Insurance needed to pay B3.7bn compensation for property
damage and loss of income, with interest of 7.5% p.a from March 31, 2011,
until such amount was fully paid by Deves Insurance. However, Deves
Insurance has recently appealed the judgment, so CPN would challenge the
appeal within December 2013.
- Profit to peak in 4Q13 due to asset sale to CPNRF
4Q13 profit is projected to peak, as Chiang Mai Airport shopping center (at
the value not higher than B11.5bn) would be sold to CPNRF in late-
December 2013, so B5bn extraordinary profit after tax from asset sales
would be booked (under assumption that the sales price is B11bn; CPN
holds 27.8% stake in CPNRF). For shopping center business, despite the
political unrest that has decreased number of visitors by 10% in some
shopping centers, the decrease is not so severe that CPN has to give rental
discount to tenants. Thus, same shopping center rental would stay over
95%, and CPN would be able to raise rental fee by 6-7% p.a. Moreover,
income from the new shopping center in Ubon Ratchathani (opened in
2Q13), from the two new projects in Chiang Mai (opened on 14 November
2013), and from the new shopping center in Hat Yai (opened in 14
December 2013), would be booked in 4Q13. FY2013 net profit (including
extraordinary profit) is projected at B10.876bn, with B5.876bn normalized
income, growing 33%yoy. FY2014 normalized income is projected to grow
by 16.4%yoy to B6.843.
- Buy. 2014 fair value is B68.00
We derive FY2014 fair value (DCF, 8.2% WACC) at B68.00, implying 61%
upside. We reiterate "BUY" for long-term investment. In this forecast and
fair value, we have not included possible asset sales in 2014 and the new
project in Malaysia opened in 2016. CPN's PER is at 17.43x, close to the
average PER of other international companies with similar business
(Capitaland in Singapore, SM Prime in the Philippines, and Parkson Retail
Group in Hong Kong) at 17.53x.