Central Plaza Hotel

Central Plaza Hotel Plc (CENTEL)

In line with our expectation
CENTEL posted a net profit of Bt91m for 3Q12, up by 184% YoY but down 50% QoQ. The result was in line with our estimate and the consensus. Stripping out an Bt18m FX loss, 3Q12 core profit would be Bt108m, up 239% YoY but down 38% QoQ. 
Results highlights
The strong YoY 3Q12 profit was driven by 24% revenue growth to Bt3.4bn and a GM that fattened 21 bps to 52.3%. CENTEL posted its best low-season top-line to date—Hotel receipts rose 22% YoY to Bt1.3bn) and Food income by 26% YoY to Bt2bn. The 3Q12 revenue breakdown was 60% Food and 40% Hotel. Food TSSG was 25.8% YoY and SSSG was 5.4%. Hotel RevPar rose 7.5% YoY (occupancy was 64.8% versus 62.5% in 3Q11; the room rate inched up 3.7% YoY).
The QoQ slippage was mainly due to a slimmer Food profit (Food revenue dipped 5% QoQ and NM declined 2.4% QoQ, due to higher labor and depreciation expenses related to outlet expansion). The net gearing ratio was flat at 1.62x at end-Sept.
Outlook
We anticipate that 4Q12 earnings will resume strong YoY and QoQ growth on high season for tourism and the Food business and due to the low base set by 4Q11 flooding. CENTEL’s 4Q11 profit was only Bt75m (the Hotel business posted a loss). Looking ahead, CENTEL is likely to report record earnings for 1Q13 on tourism high season and inorganic growth with the consolidation of the Maldives I hotel.
What’s changed? 
9M12 net profit represents 77% of our FY12 forecast (78% of the consensus), which we maintain unchanged. We see scope for earnings upside from: 1) negotiating with a business partner to buy its stakes in two hotels on Karon and Kata beaches, Phuket (it already has 84% of the Karon Beach hotel and 50% of the Kata property), 2) a new budget hotel brand (expected to be announced in Dec) and 3) new food brands. 
Recommendation
We maintain our BUY call on CENTEL. The company will post the best RevPar growth in the sector for FY13 of 21%. We expect a re-rating, prompted by record ROE of 21% next year and 30% profit growth. Our YE13 target price remains Bt26, a 20% discount to DCF value (11.5% WACC and a 2% terminal growth rate). CENTEL currently trades an FY13 PER of 21.9x, below its peak of 25.7x in 2006.