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Central Pattana

Strongest among shopping mall sector BUY

Central Pattana Plc (CPN)

- Aggressively opening new shopping malls

With 5-year expension strategy, CPN still expects its income to grow by

15%p.a in 2015-2019. Rental rate of existing shopping malls is expected to

rise by 5%p.a. CPN plans to open averagely three or four shopping centers

a year, aiming to increase the number of shopping centers under CPN’s

management from 24 in end-1Q14 to 33 within 2016. Currently, there are

six shopping malls under construction: Salaya (opening in August 2014;

90% occupancy rate), three new shopping malls (Rayong, Bang Yai and

Liab Tang Duan Ramindra) in 2015, and two new shopping malls (Nakhon

Ratchasima and Malaysia) in 2016. CPN’s investment budget is averagely

B15-16bn/year; B10-12bn/year from internal cash flow and the rest from

borrowings and assets selling. After selling Chiang Mai Airport shopping mall

to CPNRF, CPN has gained B8bn net cash flow (excluding CPN’s

shareholding equity).

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

2Q14 net profit is expected to grow continuously owing to strong shopping

mall business. Occupancy rate of existing shopping malls would stay at

95%. Moreover, income from a new shopping mall in Samui (opened in

late-March) would be booked for a full quarter. 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 as B130-150m/year extraordinary profit

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. Strong business in long run

We derive 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. Also, CPN’s rental income

is stable, so it is not likely to suffer from the political and the economic

problems.




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