Central Pattana

Central Pattana Plc (CPN)

Investment thesis: We have raised our YE12 target price to Bt51 from Bt44 because we have upgraded our FY12 same-store rental growth assumption and factored value additions from including three new projects into our model. We believe CPN is one of the best long-term growth plays under our coverage. The story is outstanding, underpinned by plans to open three shopping malls a year till 2015. We recommend weighting the stock to the maximum level during the early part of this super-growth phase. Our BUY call stands.
The best year ever: This year should be CPN’s best yet. We expect the firm to post a record FY12 core profit of Bt3.38bn, up an impressive 78%, driven by: 1) a full year’s contribution from the renovated Lardprao property, 2) a lower rental discount at Central World, now that Zen department store has re-opened, 3) higher rents at all shopping malls and 4) the openings of new projects.
Accelerating same-store rental growth: CPN’s rental rate growth has accelerated since 4Q10, led by higher rental growth at malls in suburban Bangkok and upcountry. This year, we expect rental rate expansion to be even more exciting. Apart from normal growth of 5%, two major catalysts will sustain the accelerating trend: 1) rental rate re-basing at Chiangmai and Udonthani and 2) contract renewals at four malls that opened in late 2008 till 2009.
Scope for upside to projection: The major factors that could prompt a substantial FY12 earnings forecast upgrade would be asset spin-offs and insurance payouts. We estimate a net after-tax gain on spinning off Central World office tower of Bt1.8-2.2bn, while the expected insurance payout of Bt3.3bn should be booked as a gain, as the damage has already been written off. If the major upside triggers were to fire at full force, CPN could post its highest-ever net profit of Bt8.7bn (EPS: Bt3.98) this year—157% higher than our current model suggests.
To announce details of three new projects late this month: After the announcement, we expect analysts to factor the three projects into their models, which would prompt consensus earnings and target price upgrades. We estimate that the aggregate value the three developments would add Bt3/share to CPN’s value.
Outlook
The best year ever: After two years of exceptionally low profits, due to the temporary closures of two flagship stores (Central World in 2010 and Central Plaza Lardprao in 2011), this year should be CPN’s best yet. We expect the firm to post record FY12 core earnings of Bt3.38bn, up an impressive 78%, driven by: 1) a full year’s contribution from the renovated Lardprao property, 2) a lower rental discount at Central World after Zen department store opens, 3) higher rents at all shopping malls and 4) new project openings.