Central Pattana

Central Pattana Plc (CPN)

Investment thesis
Although CPN has rallied 42% during the past three months, we believe it will continue to outperform the SET over the next year, buoyed by superior earnings growth. Moreover, we see numerous catalysts ahead (strong earnings releases, new project announcements, spin-off gains and insurance payouts), which may generate positive sentiment toward the stock and/or prompt forecast upgrades. CPN, thus, remains our top pick in Thai Consumer space and one of the best long-term growth plays under our coverage.
Four new projects added and more to come
The firm has four new projects lined up—Samui, Puttamonton, Rayong and Bangyai—for which it has yet to announce the details. But we have gathered information about the four developments from reliable sources, so we are confident to factor them into our model. Moreover, another project likely to be added soon is CPN’s first overseas mall. The firm signed an MOU with I-Berhad to develop a Bt5bn shopping center with an NLA of 90K sq.m in Shah Alam, Malaysia. The venture is currently the subject of a due diligence inquiry, which should be finished by the end of this year. We will factor the project into our model as soon as a JV agreement with I-Berhad is signed.
Higher rental rate assumptions for new malls
We think our assumptions for rental rates at future projects have been too low. The achieved rental rates at CPN's newly-opened shopping malls were 15-20% higher than our model and 20-25% more than what the firm reported for 2009. This higher rate looks set to be the new norm for CPN's new malls. As such, we have raised our average monthly rent assumptions for new shopping centers in Bangkok and tourist destinations by 27% to Bt1,400/sq.m and for provincial locations by 22% to Bt1,100/sq.m.
Earnings forecast and target price upgrades
Four new projects and new rental rate assumptions have added only 2% to our FY13-14 earnings projections, but they will considerably boost up our forecasts for FY15 onward (see Figure 4). Our YE13 DCF target price, thus, increases to Bt84.50 from Bt74.
Another two upside possibilities to our FY13 projection
CPN plans to spin off Chiangmai and Ramindra to CPNRF next year. Based on a 27.8% holding in CPNRF, we anticipate a net gain of Bt3.8bn, which would top up our FY13 earnings forecast by 71%. Moreover, next year the firm is likely to receive insurance payouts for the May 2010 fire damage at Central World. The claims total about Bt3.8bn. Once received, the payouts should be booked as gains, as the damage was written off in FY10.