Central Pattana

Central Pattana Plc (CPN)

 

Investment thesis

Our visit to Central Plaza Pinklao (new look) and CentralFestival EastVille (CPN’s new format) reaffirms our belief that CPN is one of our best long-term investments. The company has continued to improve and develop its shopping malls to make them unparalleled to those of its competitors. The major developments that we saw during the visit were in the realms of tenant selection and space management. CPN chooses tenants who will not only attract shoppers but will also differentiate its malls from others. Locations of each shop category can also engender smooth traffic flow and fit the lifestyle of customers in surrounding areas. We maintain our BUY rating with a YE16 target price of Bt63.50.

Pinklao operation—a new look 

Central Plaza Pinklao should be a major driver of earnings next year. The renovation of its first phase (85% of the total) has been completed, while the second phase (mostly on the top floor) will start to be renovated in Jan, for completion in Apr. NLA has been enlarged 8,000sqm (+14%) of which 6,000sqm is under the CPNRF. The average rental rate for short-term retail space increased around 10% to Bt2,100-2,200/sqm/month. 

The highlight of the facelift is that 20,000sqm of its space, which was previously under long-term lease contracts (amortized at a rate of Bt300-400/sqm/month), has been converted to short-term retail space. We expect revenue contribution will rise from 3% prior the facelift to 4%, even though CPN’s retail portfolio expanded 14% this year. Customer numbers per day have risen quickly to 70k on weekdays and 80-90k at weekends, which are close to the levels prior to the facelift. CPN expects traffic per day next year to increase to 80k on weekdays and 100k at weekends. Spending per head should also escalate as the shopping mall is repositioned to capture consumers with higher spending power. 

Central Festival EastVille—a new format

Central Festival EastVille (opened Nov 27) is located in an area that has high purchasing power. The mall has an NLA of 35k sqm. Its occupancy rate is nearly 85% and that is expected to rise to 90% in 1Q16. Average retail rental rate at the complex is around Bt1,400/sqm/month. We are impressed with CPN’s new format, which is a perfect complement to the indoor and outdoor lifestyle mall. 

The main concept of the mall is as an escape from Bangkok, so it allocates almost 40% of total NLA to restaurants and bars, 14% to cinemas and 9% to a fitness club. Moreover, the mall also provides a children’s play area (kids club), a pet park and a running track. Customers can spend time there from 6am until midnight. The only weak point, in our view, is the fashion zone (20% of NLA). We think merchandising and brands have yet to fulfill demand (particularly from big-ticket spenders) in the area.