3 Analysts Rate CPN a “BUY” on Expected Business Synergies from Acquiring SF

Three analysts have given a “BUY” recommendation on Central Pattana Public Company Limited (CPN) with the highest target price of 60.00 baht following the acquisition of 30.36% stake in Siam Future Development Public Company Limited (SF).

Maybank Kim Eng Securities (Thailand) (MBKET) retains a “BUY” recommendation on CPN with a target price of 60.00 baht, given the fact that the investment in SF will allow CPN to expand its project portfolio and client base. Additionally, there is potential for growth through the development of new projects on SF’s land bank in potential locations. Meanwhile, CPN’s financial position remains robust with flexibility to continue investing in other projects.

Investing in SF, which has 18 projects, will increase CPN’s rental space by 24%, or 430,628 square meters. CPN’s portfolio will expand to community mall projects, allowing access to new customers. It will have a Super Regional Mall project, Mega Bangna, which is a very successful project and has a tendency to expand continuously. There is also an opportunity to develop new projects in the CBD area and on SF’s land banks, namely Bangna, Bang Yai and Rangsit, with a total area of more than 300 rai. These may be developed as mixed-use projects in the long term. Furthermore, SF’s profitability should increase as CPN improves operational efficiency.

The consolidation of SF’s financial statements (under the same accounting standard as CPN) is expected in 4Q21. Investing in SF will increase CPN’s profit by approximately 600 million baht/year or 5%, while interest expenses are estimated to increase by 500 million baht/year based on the assumption of borrowing the whole amount for investment. The net debt-to-equity ratio is expected to rise from 0.4x to 0.8x. CPN has an opportunity to reduce debt from selling assets to CPNREIT in the future. Meanwhile, the other investment plans remain flexible that can be adjusted to manage investments appropriately.

Asia Plus Securities (ASPS) gave a target price of 58.00 baht to CPN, stating that it acquired  30.36% of SF shares from MAJOR and made a tender offer for the remaining SF shares at the share price of 12.00 baht or the total value of 25.5 billion baht. The transaction is projected to be complete this  year. The acquisition will be funded by loans, no capital increase. Even though CPN will acquire 100% of SF shares, net gearing is expected to increase to 0.8x, still lower than the covenant of 1x.

SF acquisition will expand CPN’s shopping mall portfolio and help it win partnership with IKEA, which will strengthen its business. The investment will increase interest expense in  the short term, but SF’s assets (especially 300 rai of land in Bangna, Bang Yai, and Rangsit that have good potential for development of mixed-use projects) will boost CPN’s value in the long term.

Meanwhile, KTBST Securities (KTBST) maintains a target price of 57.00 baht on CPN as a result of the acquisition of SF, which will bring positive synergy in the future. Even though this takeover will result in a lower contribution to the company’s profit in the short term, KTBST believes that this partnership will help SF and CPN grow positively in the long run.

KTBST confirms its expectation for net profit of 9.1 billion baht in 2021, down 4% YoY (excluding the SF deal in KTBTS’s forecast).   KTBST should still wait for clarity on the shareholding following the completion of the tender offer in 4Q21. Normalized earnings in 2Q21 are likely to improve YoY from a low base, but may contract QoQ due to the impact of Covid-19’s third wave.