Central Pattana

Central Pattana Plc (CPN)

5% below our estimate
CPN reported a 2Q13 net profit of Bt1.43bn, up 22% YoY but down 14% QoQ. The result was 5% below our estimate, due to higher-than-expected SG&A expenses.
Results highlights
Rental and service income advanced 17% YoY to Bt4.4bn, led by 6.5% same-store rental growth and the openings of the Suratthani and Lampang malls in 4Q12 and the Ubon Ratchathani property in 2Q13. The average rental rate increased to Bt1,499/sq.m/ month, up 4% YoY and flat QoQ. The biggest rental increases were at Udonthani and Chiangmai.
Rental margin retreated to 47% in 2Q13 from 49% in 1Q13, as the company reduced utilities charges to levels consistent with actual costs. Recall that 1Q13 margin was inflated by the fact that CPN raised service charges by 10-15%, as it expected its electricity bill to jump. But in the event, the bill didn’t rise as anticipated. On a YoY basis, rental margin jumped 207 bps, as the mean rental rate increased but most costs are fixed.
SG&A expenses exceeded our estimate, due to additional expenses for business expansion, both domestic and overseas.
Outlook
We expect YoY growth momentum to continue throughout the year, underpinned by robust same-store rental growth and the openings of new malls. Moreover, there should be an extra gain from spinning off Central Chiangmai Airport to CPNRF in 4Q13. We estimate a net spin-off gain of around Bt5bn.
What’s changed?
Our earnings forecast and YE13 target price stand unchanged.
Recommendation
CPN remains our top BUY in the Consumer sector. The company is exposed to only limited downside risk associated with slowing consumption spending, while there is scope for upside to our earnings projection. Even though we have yet to factor in undisclosed projects (3-4 developments a year, starting FY15), our model indicates a strong three-year core earnings CAGR of 30%. With this growth profile and the potential for upside, we think the current PER of 26.3x for FY14, which is only slightly above CPN’s long-term average of 25.4x, constitutes an attractive entry level. Our BUY rating stands with a YE13 target price of Bt60.