Credit Suisse has a positive view on Central Pattana Public Company Limited (SET: CPN), seeing improvement in rental discount with few percentage points further in the first two months as rental income should fully normalize by 2Q23 and a frontrunner for Central Group’s investment in Vietnam’s retail giant.
The Swiss bank raised CPN’s 2023-24 EPS by 1% and upgraded target price slightly to THB83.00 from its previous projection of THB 82.00 per share, stating that it liked CPN on the company’s decent leverage on tourism normalization at an attractive valuation.
Despite the higher electricity cost in 1Q23, Credit Suisse expected CPN to be able to keep its 1Q23 operations healthy, as 50% of the electricity cost increase will be borne by the tenants and CPN should be able to pass on some of the common area’s increased electricity cost as well.
More importantly, Credit Suisse also cited the report by Reuters that Central Group was among the companies that were negotiating to acquire Vincom Retail from Vietnam’s largest conglomerate, Vingroup.
The talks may or may not succeed, but if the deal goes through, Credit Suisse expected that this could enhance the growth outlook of CPN’s retail property that should emerge as the main vehicle for the group investment. The potential market opportunity in Vietnam retail property development could raise the possibility of another round of fast retail property growth cycle for CPN.
The target price at THB 83.00 given by Credit Suisse is based on NAV using discounted cash flow (DCF) with an 7-8% weighted average cost of capital (WACC). The Swiss lender also assumed that all land lease contracts are extended for another lease cycle after each contract expires. Credit Suisse accounted for CPN’s stake in CPNRF and CPNCG by valuing CPN’s equity stake and applying a 15% holding discount.
Additionally, Credit Suisse rated the stock Outperform given an encouraging sign of rental/traffic recovery at CPN malls and its strong momentum in the next 1-2 years.
