Last week, we accompanied CPN's new CFO, Ms Naparat Sriwanvit, to meet institutional investors in Hong Kong. The information we grabbed during the meetings reaffirms our view that CPN is one of the best long-term core holdings on the SET. It has proved resilient to weak consumption and should outperform other domestic plays. We feel that most of the fund managers were impressed with the firm, but most of them currently don’t hold CPN shares and are unlikely to take positions soon, as they are concerned about the political situation and weak Thai consumption and a perceived need for macro rebalancing.
In our view, the small foreign position in CPN implies only limited risk of selling pressure among foreign investors. The share price should start rising once the market realizes that CPN’s numbers will remain strong. At which point foreign funds will retake positions, probably in late 2014 or early 2015. As such, we believe now may be a good time for long-term investors to start accumulating the stock.
However, we expect the share price to fall in the short-term, as the recent share price rally after CPN announced an asset spin-off last week wasn’t justified by the scope for short-term upside—the firm won’t book a huge gain one-off gain, but will recognize the gain gradually over 30 years.
As such, we prefer to wait for the market to fully understand the accounting treatment for the spin-off and the share price to correct. Our comfortable entry price range is Bt43-44, the price before the recent rally and 0.5SD over the stock’s long-term average.
Long-term strategy essentially unchanged
Despite the change in top management, the overall strategy remains unchanged. CPN maintains its target to grow revenue by 15% per annum, of which 10% will come from expansion, the other 5% from existing properties. The CFO said that Mr Preecha Ekkunagul, the new CEO, plans to add policies to improve yields on existing assets, increase service levels and be more selective about tenants.
Traffic resumes pre-political rally levels
Traffic at all CPN’s shopping malls—except Central World—has resumed pre-political rally levels. Central World’s number is still lower, as there are fewer tourists in Bangkok than is usual for this time of year, but tourist numbers should recover soon, following the rescinding of the State of Emergency on March 19.
Rental growth remains strong
CPN reaffirmed that its same-store rental growth target of 5-6% this year is achievable. Despite weak consumption, management said that in 2M14, excluding Central World, the same-store rental rate still grew by 5-6% YoY, while revenue-sharing income rose 3-8% YoY.