Property development

The Company

Central Pattana (CPN) is Thailand’s largest shopping mall developer, with a 20% market share in the Bangkok Metropolitan Area. The company, established in 1980, is one of the flagship businesses of the Central Group (Chirathivat family), which is involved in the retail, hotel, restaurant and trading businesses. The Central Group holds a 55% stake in the company. CPN became a listed company in the Stock Exchange of Thailand in 1995. Since 2014, it has been the only Thai company in the real estate sector selected as an index component of the Dow Jones Sustainability Indices Emerging Markets.

As of the end of 2015, CPN had total net leasable area (NLA) under its management of around 1.576m sq metres. The company operates 29 shopping malls, comprising 13 in Bangkok and 16 in the provinces. Malls in Bangkok contribute 56% of total rental income and provincial malls make up the remaining 44%. CPN is also the property manager and major shareholder of two property funds, holding 27% in CPNRF and 25% in CPNCG. Shared profit from these property funds accounted for around 9-11% of CPN’s net profit during 2012-14. The company also operates seven office buildings and two residential buildings in Bangkok and owns two hotels in the provinces; however, these are considered non-core businesses, contributing around 7% to CPN’s total revenue.

CPN reported compound annual growth (CAGR) rate of 40% on net profit during 2012-15. Net profit stood at BT7.88bn ($237.2m) as of September 2015, up 8% year-on-year. The growth has been driven by expansion, rental rate increases and improving profitability (earnings before interest, taxes, depreciation and amortisation margin rose from 53% in 2012 to 56% in the first nine months of 2015). The slowing profit growth in 2015 resulted largely from renovations of shopping malls at Pinklao and Bangna.

Development Strategy 

The company has a strong expansion profile, with its NLA having grown by around 9% per annum between 2004 and 2014. We expect NLA to rise 29% during 2015-17, driven mainly by 12 new domestic malls and three regional malls in the next five years. Government stimulus should bring clearer positive signs of economic recovery, which should in turn encourage CPN to roll out more new projects in 2016. This together with a 5% annual rise in the same-store rental rate and the gradual conversion of 18% of its NLA under long-term lease contracts to short-term rents, which should raise rental prices by four- to fivefold, should be the key catalysts for our forecast for earnings per share CAGR of 23% for CPN during 2016-17.

The long-term prospects of CPN should be supported by growing urbanisation, an expanding middle class and the influx of tourists. Meanwhile, its expertise in the shopping mall business and strong synergy with the Central Group, the major shareholder that brings its businesses to CPN’s malls, enable it to attract dynamic tenants and command high rents.

Residential real estate is the latest business that the company is entering, with CPN recently launching three condominium projects for sales in Chiang Mai, Khon Kaen and Rayong due to the good potential for mixed-use developments in these locations. These projects were soft-launched in late 2015 and now have pre-sales of 80%, 50% and 60%, respectively. Considering the locations, we expect the projects are targeted at the middle- to upper-end segment, and estimate a total project value of around BT3.5bn. ($105.4m). This would be an additional catalyst during 2018-19 if the transfers can be done on schedule.

Regarding regional expansion, CPN aims to replicate its success in Thailand in neighbouring countries. The company’s 60:40 joint venture with a subsidiary of I-Berhad will develop its first project in Malaysia, a shopping mall in Selangor that is expected to begin construction in 2016. The company has also studied investment opportunities in Indonesia and Vietnam.