Central Pattana:Buy,Stronger growth ahead

Stay positioned for stronger growth in 2018and 2019

    CPN has been one of our top ASEAN property ideas, up 16% y-t-d vs. the broad market(SET), which is flat and the property index (SETPROP), which is up 5% y-t-d. DespiteCPN’s y-t-d outperformance, we see healthy upside as we believe earnings growth islikely to accelerate going into 2018(+21% EPS growth) and 2019(+15% EPS growth)after a more moderate 2017(+8% EPS growth), translating into a +15% EPS CAGR over2016-19e. Our 2016-19e EPS CAGR of 15% is underpinned by top line growth of 13%CAGR over 2016-19e, which in turn is driven by the group’s announced and planneddevelopments over the next few years. Management has a 5-year top line growth targetof 14-15% from a mix of same-store rent growth (3-4%), asset enhancements (1-2%),new malls and expansions (7-8%), and contributions from residential properties. Changesto our estimates are minimal (largely related to the timing of completions). With this notewe introduce our 2019estimates. Our 2017-19e EPS estimates are in line withconsensus expectations.Focus remains on capital allocation in the coming years

    We expect CPN to generate operating cash flow of cTHB20bn in 2018e. Withdividend and interest payments of cTHB5bn, this would leave CPN with cash ofcTHB15bn, which is similar to its current capex run rate of cTHB15-18bn per year.With leverage remaining low and well within management’s comfort level and theplanned conversion of CPNRF to a REIT from its current status as a property fund,investor focus remains on capital allocation in the coming years, in our view. Thusfar, management has been judicious in its deployment of capital targeting 14-15%IRR on any planned capex, which is in line with its internal hurdle rates. Whileoverseas expansion has been discussed on and off, we prefer a Thailand centricfocus noting that there is ample scope for CPN to grow in Thailand. The group iscurrently present in only 12provinces (out of 77– including Bangkok) and someprovincial markets have sufficient demand to support more than just one CPN mall.Raise RNAV-based TP by 13% to THB73.05; maintain Buy

    We raise our RNAV by 13% to THB73.06as we roll-forward our estimates,incorporate CPN’s development plans over the next few years, and mark-to-marketthe valuation for its listed associates. Our qualitative premium/discount to our RNAVremains unchanged at zero – hence, our TP (pegged at RNAV and rounded down) isalso raised by 13% to THB73.05. Our TP for CPN implies upside of 10.3% fromcurrent levels. While the stock is trading at c30x FY17e EPS, the strong earningsgrowth outlook puts this at c21x FY19e EPS. Maintain Buy.