Central Pattana

Central Pattana Plc (CHG) 

Investment thesis

Our visit to CentralPlaza Westgate (CPWG, opened last Friday) reaffirmed our belief that CPN has strong franchise value and is one of the best mall developers in Thailand. Even with the prevailing consumption slowdown and a very large mall, CPN is still able to achieve a high occupancy rate, while traffic crowded in shortly after doors opened. We believe CPWG will be successful and become another of CPN’s major earnings growth drivers. We maintain our BUY call on CPN with a YE15 target price of Bt57.

CPN’s second largest mall

CPWG is located in Bang Yai (northwest greater Bangkok) and has a GFA of 500,000sqm, just slightly smaller than Central World (CW)’s 550,000sqm. But, in terms of Net Leasable Area (NLA), CPN has 85,605sqm at CPWG, much smaller than CW’s 199,500sqm, as CPN’s space at CPWG excludes space under the Central Group, such as the Central department store, Tops, Power Buy, SuperSports, B2S and Office Mate. The shopping mall is positioned to capture mainly families in B segment. Average retail rental rate is around Bt1,400/sqm/month, ranking eighth in CPN’s portfolio, while the occupancy rate at the opening date was at 85% and is expected to increase to 93% by YE15 (leasing progress is now 95%). We estimate CPWG to contribute around 5% to total rental revenue in FY16, ranking third behind CW (13%) and Lardprao (8%).

What we like

We like its location at a major intersection (Kanchanaphisek and Rattanathibet roads), with easy access from the MRT Purple Line (to begin operating next year). We were impressed with CPWG’s completeness in terms of product offerings. It comprises 500 retail shops, 200 food outlets, a 12-screen cinema, five category-killer stores, one department store, one superstore, one high-end supermarket, a premium fitness center and event halls. Coupled with the concept to provide facilities such as children’s toilets and large numbers of seating and rest areas, we wouldn’t be surprised if the complex was the best shopping destination in its catchment area (60km radius). Note that the opening of an IKEA store in 2017 should expand its completeness even further.

CPWG to be major growth driver

We think there is large room to raise the rental rate at CPWG as CPN sets the rate quite low in order to achieve a high occupancy rate at the beginning. The average rental rate of the three-story CPWG is around equal to that of seven-story Central Plaza Changwattana (CPC), the geographically closest CPN mall with the same market positioning. Given that the lower the floor, the higher the rental rate, the average rental rate of the first three floors of CPC is thus more expensive than that of CPWG. As such, we expect a jump in rental rate at CPWG upon the renewal of three-year rental contracts in 2018. Given the large revenue contribution to ensue, the impact to CPN’s performance should be massive.