Central Pattana

Central Pattana Plc (CPN)

Investment thesis: We hosted a “Chitchat with management” yesterday at which CPN’s CFO, Naris Cheyklin, talked about new projects in the pipeline, the operations of current malls and the firm’s strategic push. In our view, not only will the company sustain high long-term growth, there are short-term catalysts that will lead to a series of earnings forecast upgrades. BUY!
Top-line growth of at least 15% till FY15: The CFO confirmed that CPN will open three new stores a year till FY15. He said that the scope to build shopping malls upcountry is substantial, particularly in border provinces. Even in Bangkok, the supply of retail space appears insufficient to serve demand that has grown rapidly in recent years. He said the expansion of mass transit lines will create new prime locations for mall developers. As such, CPN recently acquired three more land plots in Bangkok, bringing its land bank in the city to four locations. The firm expects to have all four planned developments completed by 2015.
Project in China is unlikely in near future: We feel a bit relieved to learn that CPN has postponed the project in China, as we think the risk is too high, given the oversupply in that country. The CFO said high land prices and prevailing oversupply meant that the project was unfeasible. He prefers to wait until asset prices have declined. However, in order to sustain growth momentum beyond FY15, CPN needs to expand overseas. Now it is looking at two projects in ASEAN countries, one of which is likely to be in Indonesia.
May join hands with a residential developer: During the event, we discussed the business model that mall developers in other countries have adopted—building condos collocated with shopping centers, as they complement each other and the profits from condo sales can help finance the malls. The CFO said CPN is studying this model, but is unlikely to build a condo itself. The firm prefers to join hands with a residential developer and concentrate only on shopping center development.
Potential upgrades: Based on the CFO’s guidance, our rental rate growth assumption appears to be too conservative—the renewal rate at Pattaya Beach is higher than estimated. Moreover, the gain from spinning off the Bt4bn Central World office (late 2Q12 or early 3Q12) should add substantially to our FY12 forecast.
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