• Optimistic of new strategy to create more events to boost traffic at malls in order to reduce rental discount
• Confident of 10-15% revenue growth p.a. for the next five years as CPN has secured land for all planned projects
• OUTPERFORM, TP Bt88; near-term catalyst would be strong yoy earnings growth in 2Q-3Q18

Positive view after site visits

We visited Central Plaza Udonthani, Central Plaza Khonkaen and ESCENT Khonkaen condominium (Bt980m, 100% sold).  Strong occupancy rate of over 90% and traffic at the two malls are within our expectations given their track record. We are optimistic of their new strategy to create more events to boost traffic, so they would not need to offer rental discount to tenants. Based on our discussion with the mall managers, overall traffic and spending are better than last year. For condominium project, we were surprised by the quality at CPN’s first completed condominium project. They have transferred 25% of sold units since June, which is on track, and expect the rest to be transferred in 3Q18. This suggests good long-term prospects for this business unit. This is also reflected in six sold-out projects launched since FY16. CPN will launch two residential projects in 2H18 worth Bt3.4bn comprising single-detached (Bt2.1bn) and condominium (Bt1.3bn) projects. We expect positive response.

Long-term plan intact despite intense competition

Management gave an update on progress at two new malls this year which are on track. One is in Malaysia. Our key concern is this project has 60% pre-lease. CPN still targets to open this project in 4Q18 although occupancy rate would be 70-75% at the opening date vs 80% average rate for CPN. However, they should still achieve c.12% project IRR due to a weaker Malaysian currency. Management acknowledged that competition is intense but remains confident of 10-15% revenue growth p.a. in the next five years based on their current land bank. We therefore keep our FY18F profit at Bt12.5bn, up 24% yoy. 

Maintain OUTPERFORM rating, DCF-based TP of Bt88

We continue to like CPN for offering clear earnings visibility supported by a large recurring income base, the ongoing expansion plan, and good earnings growth.