Central Plaza Hotel

Central Plaza Hotel (CENTEL)
 

Investment thesis: We view that it is too soon to reload CENTEL, as tourism low season has started (we expect a 70-80% QoQ plunge in 2Q12 profit) and Europe (47% of hotel room revenue) is in crisis. The stock isn’t cheap—a YE12 PBV of 2.5x, 2SDs above its FY06-11 mean. Our HOLD rating stands with a YE12 target price of Bt13.40, a 20% discount to DCF value (WACC of 13.5% and a 2% terminal growth rate).
Hotel business peaked for year in 1Q12: CENTEL posted record hotel RevPar of Bt3,363 for 1Q12 (driven by an all-time high mean room rate of Bt4,472). But that was as good as it gets this year. We expect RevPar growth of 7% YoY to Bt2,006 in 2Q12 (occupancy rate of 65% in 2Q12 versus 62.5% in 2Q11 and a 5% room rate rise). The Hotel business will improve strongly YoY, in 2Q12 from the Bt96m net loss posted for 2Q11.  
2Q12 Food revenue bounce, but margin of concern: Poor 1Q12 Food SSSG of only 3.8% YoY should be followed by a 2Q12 recovery—we forecast Food SSSG of 10% YoY and TSSG of 30% (boosted by the consolidation of Ootoya Japanese restaurant). CENTEL targets SSSG of 5% for FY12 and TSSG of 25-27% (our TSSG assumption is a more conservative 20%). Despite expected 2Q12 Food revenue growth of 30% YoY, net profit from Food will rise a more subdued 15% YoY, due to slimmer GM (higher labor costs and initial expenses for new outlets).
What could there be scope for upside? Budget hotels—CENTEL plans to launch a new price segment with a mean room rate of Bt1,000/night. The firm has two proprietary budget hotels in Chonburi and Ratchadapisek Road, Bangkok, and another 5-6 management contracts (expected to be announced in July 2012). Hotel sales to a property fund—management is considering a deal, but has so far offered neither details nor a timeline. A new big proprietary hotel—given expected EBITDA growth of 30% in FY12 and a gearing ratio decline from 1.7x at YE11 to 1.3x at YE13, CENTEL is considering investing in a new hotel. Construction would start in FY14.