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Central Pattana

1Q14 profit as expected. To continue growing in 2Q14 BUY

Central Pattana Plc (CPN)

- 1Q14 normalised grow 24.6%qoq as expected

1Q14 net profit was reported at B1,710m, falling 2.3%qoq; B377.3m

extraordinary profit from the reversal of impairment of asset was booked

in 4Q13. Excluding extraordinary items, 1Q14 normalised profit grew by

24.6%qoq. Expenses on maintenance, marketing and sale promotion

dropped significantly, boosting gross margin from 47% in 4Q13 to

48.4% in 1Q14 and lowering SG&A/Sales from 22.6% in 4Q13 to 15.3%

in 1Q14. Income from operation slipped 1%yoy to B5,273m. Though

income from two new shopping malls in Chiang Mai (opened in

November) and Hat Yai (opened in December) was booked for a full

quarter, average rental fee dropped by 1.7%qoq to B1,484/sq.m./month

(CPN gave over 20% rental discount to tenants for two months during

the protest rally). Average occupancy rate was still as high as 95%. In

terms of financial structure, CPN’s 1Q14 net gearing dropped to 0.46x.

- New shopping malls and profit from asset sale to boost 2Q14 profit

2Q14 net profit is expected to continue growing qoq. After the protest

rally at Ratchaprasong Intersection stopped, Central World would be

opened as usual. Thus, CPN’s rental discount would drop near 0%, and

average rental fee would rebound. Income from a new shopping mall in

Samui (opened in late-March with total leasable space of 22,600 sq.m)

would be booked for a full quarter. Also, occupancy rate of existing

shopping malls would to stay at 95%, and so rental income would

remain strong. CPN might recognize B4-4.5bn extraordinary profit in

2Q14 after Chiang Mai Airport shopping mall valued B10bn has been

sold to CPNRF in late-April. However, CPN has currently been discussing

with the auditor and the Securities and Exchange Commission (SEC)

whether the extraordinary profit should be booked once and for all in

2Q14 or recognized little by little for 30 years (correspondent with the

rental contract). We have not included the extraordinary profit in our

earnings forecast yet. Overall, FY2014 net profit is projected to grow by

17%yoy to B6,923m.

- Buy. 24% upside. Good growth from new shopping malls

We maintain FY2014 fair value (DCF, 8.2% WACC) at B55.00, implying

24% upside. We recommend buying for long-term investment, as CPN

would benefit from the opening of new shopping malls.




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