Central Pattana
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Profit misses target as new malls drag on rental and service margin BUY
Central Pattana Plc (CPN)
Below our model by 11%
CPN reported 3Q15 net profit of Bt1.8bn, down 6% YoY and 9% QOQ. The figure was below our estimate and that of the consensus by 11% and 12%, respectively, due to lower-than-expected rental revenue and operating expenses that were higher than our forecast.
Results highlights
Rental and service income rose 7% YoY to Bt6.1bn, while the same-store-rental rate was flat YoY due to 1) higher rental discount from 3% to 5% (including the back-dated adjustment for the discount in 1H15), 2) lower revenue sharing on weaker retail sales, and 3) the Pinklao renovation.
Its rental and service margin declined to 47.2% in 3Q15 from 49% in 2Q15 due to the below-average margin recorded at new shopping malls (Rayong, Phuket and Westgate) during their initial phases.
F&B Revenue rose 10% YoY to Bt274m thanks to new food courts at new shopping malls.
Hotel revenue rose 6% YoY to Bt232m on the back of higher RevPar at the Hilton Pattaya.
SG&A expenses increased 20% YoY and 12% QoQ to Bt961m due to opening expenses for Westgate mall and pre-operating expenses for residential projects (to be launched in 4Q15).
Outlook
Earnings for 4Q15 should be stronger thanks to improving shopping sentiment, the re-opening of Pinklao after its facelift and higher occupancy rates at new shopping malls.
What’s changed?
We have cut our FY15 earnings estimate by 2% to reflect weaker-than-expected 3Q15 results. Our YE16 target price has been trimmed to Bt63.50 from Bt65.
Recommendation
We believe 3Q15 was the bottom and CPN’s earnings growth profile should gradually improve from 4Q15 onwards. CPN’s current valuation also looks attractive in our view. It is trading with a PER of 25.8x FY15 and 20.6x FY16, versus its long-term average of 26.7x. Our BUY rating stands.
