Central Pattana

Aggressive growth from new shopping malls

Central Pattana Plc (CPN)

CPN plans to open three to four new shopping malls each year and increase a rental rate at

existing malls by 5% on average in order to achieve the revenue growth target of 15% a year.

We recommend buying; 2H14 outlook will be good from both new and existing malls and profit from asset sales.

- 15% p.a. revenue growth targeted for next five years

CPN aims for revenue growth of 15% per annum (p.a.) over the next five years

under a plan to improve existing assets to add value, increase a rental rate at

existing shopping malls by 5% a year, and open three to four new shopping

malls each year. In 2015-2016, the company is launching seven shopping malls

in Thailand; four of which are during construction process: Central Rayong,

Central Westgate, and Central Festival East Ville in 2015 and Central Nakhon

Rathchasima in 2016. For overseas investments, the company is launching a

joint venture with Malaysia in 2017 and having a feasibility study conducted for

projects in Indonesia and Vietnam. Average investment budget is set at B15-

16bn a year, mainly from working capital, borrowings, and money from asset

sales. Recently, the company has received net cash (excluding CPN’s

shareholder equity) of B8bn from selling of leasehold rights in Central Plaza

Chiangmai Airport to CPNRF.

- Good growth foreseen in 2H14 from existing and new shopping malls

We project to see good business outlook in 2H14 given increasing revenue from

four new shopping malls: Central Festival Chiangmai and Central Festival Hat

Yai (opened in 4Q13), Central Festival Samui (opened in late March 2014), and

Central Plaza Salaya (opened on August 12, 2014). Revenue from existing

shopping mall will remain good from the current occupancy rate of 95% and a

planned rental rate hike of 5%. In addition, there will be extraordinary profit of

approximately B4.5bn from the asset selling to CPNRF, which is now under a

discussion process with the SEC whether it should be booked once for the

whole amount or gradually booked throughout the next 30 years; the

conclusion will be made in 3Q14. Preliminarily, under assumption that the

extraordinary gain is recognized B150m each year for the next 30 years in

consistent with the rental contract, FY2014 normalized profit is estimated at

B7.3bn and net profit at B7.45bn or the growth of 24%yoy and 19%yoy,

respectively.

- Buy…30% upside

We recommend buying CPN. 2014 fair value (DCF, WACC of 8.2%) is B60,

providing a 30% upside.