CPAXT’s investment in The Happitat, a mixed-use real estate development, may raise short-term concern on the hit to earnings from interest expenses arising out of the investment and slow operational ramp-up as well as concerns about future investments in activities beyond its core business. After factoring in more conservative project assumptions than the company, we cut our forecasts for 2025-28 by up to 3%, assuming it will book earnings from this investment in 2029 (vs its target of 2028). We now forecast core earnings CAGR of 16% (vs sector average of 14%) in 2025-27, with organic sales and margin improvement and synergy from amalgamation outpacing earnings dilution from The Happitat. We maintain Outperform with a new mid-2025 DCF TP of Bt40 (WACC of 7.1%, LT growth of 2.5%) (from Bt41).
CPAXT - Entering into mixed-use real estate development
Entering into mixed-use real estate development
What’s new. On Dec 13, CPAXT entered into mixed-use real estate development, setting up a new subsidiary, Axtra Growth Plus Co., Ltd. (95% held by CPAXT and 5% by MQDC Town Corp. Ltd.) as an investment arm, with registered capital of Bt8.4bn. This subsidiary will hold 100% in Happitat at the Forestias Co., Ltd., which is engaged in mixed-use real estate development under the project name “The Happitat”. The Happitat is on Bangna-Trad Km7, situated on the front of the Forestias project, which will have up to 2,000 homes (60% sold), with three buildings containing shopping malls (one has a 10-story office tower) and a central utilities plant serving as a central utilities hub. Within Happitat, CPAXT plans to open a Lotus’s hypermarket (5,000 sq.m.), retail space (>43,000 sq.m.) and office space (>24,000 sq.m.). CPAXT will invest a total of Bt12bn in this project (2% of total assets), consisting of Bt8bn (capital already paid, funded by LT loans with cost of funds of 3.8% p.a.) plus up to Bt4bn for construction in 2025, mostly funded by internal cash.
Investment rationale. 1) Invest in an attractive mixed-use project aligning with one of its business goals of creating a smart community center beyond simply retailing, tapping into a new upper end market with more sustainability approaches, with target customers being the >10,000 people inside the Forestias project, those in nearby projects (1.2mn within a 7km radius) and tourists (project located 20km from airport); 2) faster returns on this brownfield investment (targeted completion within the next 12-18 months) than greenfield (4-5 years); 3) obtaining expertise on commercial property development from its partner.
Our view. This transaction may raise short-term concerns on: 1) a hit to earnings from interest expenses arising out of the investment that will outpace operational ramp-up in this new business; 2) future investment beyond its core business. Factoring in this project leads us to cut our 2025F by Bt240mn (2%), 2026F by Bt450mn (3%), 2027F by Bt340mn (2%) and 2028F by Bt160mn (1%), assuming higher interest expenses from end-2024, project completion in 1H26 and occupancy and rental rates growing less rapidly than its targets of 85% occupancy rate in retail and 40% in office units in the first year and >90% within the next three years. Our projection assumes earnings accretion from 2029F (vs its target in 2028F). Its net DE will rise from 0.37x to 0.41x upon project completion.
Key risks are changes in government policies and purchasing power. Key ESG risks are energy & waste management, sustainable products (E) and product quality management, labor practices and data privacy (S).