Minor International

Minor International Plc (MINT)

Better than we expected
MINT posted a core profit of Bt585m for 3Q12, up by 69% YoY and 61% QoQ. The result was 28% above our estimate, due to better-than-expected other income (and 26% above the consensus). Because of the high base set by the record net profit of Bt1.3bn posted for 3Q11 (a Bt1.05bn marked-to-market gain from its stake in S&P Syndicate Plc), the 3Q12 net profit dived 55% in YoY terms.
Results highlights
The strong YoY core earnings growth was driven by 15% Hotel revenue expansion to Bt2.7bn, a 6% rise in Food receipts to Bt2.8bn and a 30% jump in residential sales to Bt710m. Hotel RevPar rose 5% YoY (the effect of a 6.7% mean room rate increase was mitigated by a dip in occupancy to 67% from 68% in 3Q11). The Food business was resilient in 3Q12—TSSG of 12.5% YoY and SSSG of 3.3%. The QoQ profit growth was due to stronger Hotel numbers and increased residential sales (from Bt593m in 2Q12 to Bt710m, led by Regis condo transference). 
In 3Q12, average GM inched up 1.5% YoY to 53.8%, led by Hotel GM, which expanded 3.5% YoY, and residential sales GM (up 5.6% YoY). Thus, core margin increased from 5.3% in 3Q11 to 8.0% in 3Q12. The net gearing ratio improved slightly from 1.25x at end-June to 1.20x end-Sept.
Outlook
We anticipate substantial YoY and QoQ profit growth in 4Q12. Note that MINT set a low base comparison in 4Q11, due to a Bt238m asset write-off and inventory damage caused by flooding during that quarter. On a QoQ basis, earnings will rise on seasonality. We also anticipate both YoY and QoQ bottom-line growth for 1Q13.
What’s changed? 
We conservatively maintain our projection unchanged. 9M12 net profit represents 74% of our FY12 forecast (76% of the consensus). New acquisitions and/or the announcement of details of a planned residential project (in Phuket) would mean scope for upside to our model.
Recommendation
We had revised up our YE13 target price to Bt23 (from Bt21) to factor in a 1% cut to WACC to 11.5% (in line with MINT’s peer, CENTEL). We haven’t changed the other components of our valuation model—a 2% terminal growth rate and a 20% discount to DCF value. MINT trades at an FY13 PER of 21.2x, near its mean. A valuation re-rating may be prompted by the expected 4Q12-1Q13 earnings uptrend (which would outperform the SET) and anticipation of the announcement of a new acquisition and/or a residential project.