Sunday, February 22, 2009
CENTRAL PATTANA PLC (CPN)
Leader in retail mall development with firm expansion plan
Disclaimer: The author's opinions and estimations given in this article might be prejudiced although he has tried his best to maintain the neutral position. The data presented in this article is carefully verified by the author to ensure that it is as accurate as possible. However, he can’t ensure that there will not be any mistake. To use the information in the article for one’s own investing, the liability shall not be born to the author.
Introduction
CPN is a leader in retail mall development. By Sep 2008, it owns 10 shopping mall having net leasable area of 563,000 sq. m. In addition, it owns 144,000 sq.m. of office area. Revenue is generated primarily from rental fee in retail mall and office with small portion from food & beverage in the retail mall it operates. CPN also earns dividend income from the one-third interest in CPNRF, which owns 2 retail malls, Central Rama 2 and Rama 3.
CPN has plan to open additional 5-7 malls from 2009-2012 and thus expand its retail space by over 300,000 sq.m., a remarkable growth amid the economic crisis. As of this writing (21 Feb 2009), two shopping malls, Changwattana (63,000 sq.m) and Pattaya Beach Festival (54,000 sq.m), was opened. Central Chonburi (39,000 sq.) and Khonkaen (48,700 sq.m) will be opened by mid and late of this year. Three additional malls, Rama 9, Pre-Cadet School Site and Chiangmai2, are in the study phase, which, when completed, will add about 120,000 sq.m.to its retail mall portfolio.
The capital expenditure for the new projects is more than 20,000 billion Baht for the next 4 years.
Shopping malls developed by CPN has such a strong anchor tenant as Central Department Store and other retail specialties in Central Retail Group. Therefore, it is anticipated that the occupancy rate will not drop and it is able to increase the rental fee during this tough time. It would be able to ride the tough time and emerge stronger with its new projects.
With its growth story, this article attempts to determine the intrinsic value of CPN by discounted cash flow method.
Revenue Growth
Through its continuous shopping mall development between 2009 and 2012, the net leasable area for shopping mall is expected to increase progressively from 563,000 sq.m to 884,000 sq.m. or 58% increase. Assuming it can raise the rental fee by 5% annually and maintain an occupancy rate of 96%, its renting revenue for the retail mall will be increased from 7,100 MB in 2008 to 15,800 MB in 2015.
The office renting space will be increased from 144,280 sq.m to 171,280 sq.m in 2009 and no expansion thereafter. Assuming the renting fee is increased by 3% annually and maintain occupancy rate of 95%, its revenue will increase from 880 MB to 1,300 MB.
Revenue from F&B is also included but the contribution is minimal and not mentioned herein.
Gross Profit & EBIT
Gross profit margin is assumed to be 46%, 39% and 20% for retail mall rent, office rent and F&B respectively. By year 2015, total gross profit is expected to be 7,900 MB versus 3,700 MB forecasted for 2008.
Assuming SG&A expense of 20% of total revenue, EBIT for 2015 will be 4,365 MB.
Depreciation and Capital Expenditure
CPN, in Sep 2008, forecasted its capital expenditure for new projects and enhancement of over 20 billion for the next 4 years
For maintenance cost, it is set at 1.025 times the depreication. As for depreciation, CPN charges approximately 5% on in fixed asset annually. Thus, the estimated depreciation on new projects is set at the same rate.
Weighted Average Cost of Capital
As of Q3 2008, Debt to Equity ratio is 1:1. CPN has interest-bearing debt totaling 14,000 MB. Cost of equity and cost of debt is approx 10.69% and 5.4%. Therefore, weighted average cost of capital (WACC) is 7.24%. It is assumed risk free rate of 4.40%, market risk premium of 6.29%, beta of 1.0 and spread of 1.00%.
Present Value of Discounted Free Cash Flow
Free cash flow is calculated as per the following expression: FCF = EBIT(1-T) + DA – CAPEX – CWC. And it is discounted by the WACC of 7.24%. After year 2015, it is assumed no new project is developed and the FCF will increase by 3% for the rest of the period. Corporate tax rate is 30%. Change in working capital is assumed to be 0 as CPN has negative working capital. Present value to the firm is 40,780 MB. As of Q3 2008, CPN has net debt of 11,000 MB (Debt 14,000 MB and Cash 3,000 MB). Therefore the firm equity value is 29,780 MB.
In addition, CPN earns dividend income from the investment in CPNRF. Assuming a dividend growth of 2.5% per annum (Next year dividend of 0.88 Baht per share. CPN owns 33%), the present value of the dividend is 6,760 MB.
Therefore total equity value is 29,780 + 6,760 = 36,540 MB. Given its number of share outstanding of 2,178,816,000 shares, the equity value per share is 16.77 Baht.
Risks and Other concerns
As of writing, CPN is still negotiating with State Railway for lease extension at Central Plaza Ladprao. This evaluation assumed CPN will be granted the right for lease extension. It also assumes no erosion to the gross profit margin.
Post-Publishing Date
On 23 Feb 2009, CPN announced it has enter into agreement with CID to sub-lease the right in Central Ladprao (CID is the main leasor of the site from State Railway. The lease extension was approved). The transaction worth about 16,000 MB paying progressively during the lease period of 20 years which will expire in 2028. Shareholder's meeting will be held early March as this transaction requires shareholder's approval. No other details are available at present.
Disclaimer: The author's opinions and estimations given in this article might be prejudiced although he has tried his best to maintain the neutral position. The data presented in this article is carefully verified by the author to ensure that it is as accurate as possible. However, he can’t ensure that there will not be any mistake. To use the information in the article for one’s own investing, the liability shall not be born to the author.
Introduction
CPN is a leader in retail mall development. By Sep 2008, it owns 10 shopping mall having net leasable area of 563,000 sq. m. In addition, it owns 144,000 sq.m. of office area. Revenue is generated primarily from rental fee in retail mall and office with small portion from food & beverage in the retail mall it operates. CPN also earns dividend income from the one-third interest in CPNRF, which owns 2 retail malls, Central Rama 2 and Rama 3.
CPN has plan to open additional 5-7 malls from 2009-2012 and thus expand its retail space by over 300,000 sq.m., a remarkable growth amid the economic crisis. As of this writing (21 Feb 2009), two shopping malls, Changwattana (63,000 sq.m) and Pattaya Beach Festival (54,000 sq.m), was opened. Central Chonburi (39,000 sq.) and Khonkaen (48,700 sq.m) will be opened by mid and late of this year. Three additional malls, Rama 9, Pre-Cadet School Site and Chiangmai2, are in the study phase, which, when completed, will add about 120,000 sq.m.to its retail mall portfolio.
The capital expenditure for the new projects is more than 20,000 billion Baht for the next 4 years.
Shopping malls developed by CPN has such a strong anchor tenant as Central Department Store and other retail specialties in Central Retail Group. Therefore, it is anticipated that the occupancy rate will not drop and it is able to increase the rental fee during this tough time. It would be able to ride the tough time and emerge stronger with its new projects.
With its growth story, this article attempts to determine the intrinsic value of CPN by discounted cash flow method.
Revenue Growth
Through its continuous shopping mall development between 2009 and 2012, the net leasable area for shopping mall is expected to increase progressively from 563,000 sq.m to 884,000 sq.m. or 58% increase. Assuming it can raise the rental fee by 5% annually and maintain an occupancy rate of 96%, its renting revenue for the retail mall will be increased from 7,100 MB in 2008 to 15,800 MB in 2015.
The office renting space will be increased from 144,280 sq.m to 171,280 sq.m in 2009 and no expansion thereafter. Assuming the renting fee is increased by 3% annually and maintain occupancy rate of 95%, its revenue will increase from 880 MB to 1,300 MB.
Revenue from F&B is also included but the contribution is minimal and not mentioned herein.
Gross Profit & EBIT
Gross profit margin is assumed to be 46%, 39% and 20% for retail mall rent, office rent and F&B respectively. By year 2015, total gross profit is expected to be 7,900 MB versus 3,700 MB forecasted for 2008.
Assuming SG&A expense of 20% of total revenue, EBIT for 2015 will be 4,365 MB.
Depreciation and Capital Expenditure
CPN, in Sep 2008, forecasted its capital expenditure for new projects and enhancement of over 20 billion for the next 4 years
For maintenance cost, it is set at 1.025 times the depreication. As for depreciation, CPN charges approximately 5% on in fixed asset annually. Thus, the estimated depreciation on new projects is set at the same rate.
Weighted Average Cost of Capital
As of Q3 2008, Debt to Equity ratio is 1:1. CPN has interest-bearing debt totaling 14,000 MB. Cost of equity and cost of debt is approx 10.69% and 5.4%. Therefore, weighted average cost of capital (WACC) is 7.24%. It is assumed risk free rate of 4.40%, market risk premium of 6.29%, beta of 1.0 and spread of 1.00%.
Present Value of Discounted Free Cash Flow
Free cash flow is calculated as per the following expression: FCF = EBIT(1-T) + DA – CAPEX – CWC. And it is discounted by the WACC of 7.24%. After year 2015, it is assumed no new project is developed and the FCF will increase by 3% for the rest of the period. Corporate tax rate is 30%. Change in working capital is assumed to be 0 as CPN has negative working capital. Present value to the firm is 40,780 MB. As of Q3 2008, CPN has net debt of 11,000 MB (Debt 14,000 MB and Cash 3,000 MB). Therefore the firm equity value is 29,780 MB.
In addition, CPN earns dividend income from the investment in CPNRF. Assuming a dividend growth of 2.5% per annum (Next year dividend of 0.88 Baht per share. CPN owns 33%), the present value of the dividend is 6,760 MB.
Therefore total equity value is 29,780 + 6,760 = 36,540 MB. Given its number of share outstanding of 2,178,816,000 shares, the equity value per share is 16.77 Baht.
Risks and Other concerns
As of writing, CPN is still negotiating with State Railway for lease extension at Central Plaza Ladprao. This evaluation assumed CPN will be granted the right for lease extension. It also assumes no erosion to the gross profit margin.
Post-Publishing Date
On 23 Feb 2009, CPN announced it has enter into agreement with CID to sub-lease the right in Central Ladprao (CID is the main leasor of the site from State Railway. The lease extension was approved). The transaction worth about 16,000 MB paying progressively during the lease period of 20 years which will expire in 2028. Shareholder's meeting will be held early March as this transaction requires shareholder's approval. No other details are available at present.
# posted by offshore-engineer @ 6:39 PM 
