Minor International

Minor International Plc (MINT)

Investment thesis
Following the roadshow with MINT yesterday, we remain confident that MINT will set a record profit this year. 2Q-3Q13 will be the best low season quarters in the firm’s history. New acquisitions would boost MINT’s earnings profile; the firm has set a Bt15-16bn acquisition budget over the next five years. Its net gearing is its lowest since 2008. We have upgraded our YE13 target price to Bt32 (from Bt29) to factor in Anantara Layan, Phuket, and new hotels in FY14-15 (proprietary inventory will rise by 9% in FY14 and by 13% in FY15). June is a good month to accumulate the stock ahead of the release of seasonally weak 2Q13 numbers.
Proprietary hotels—strong backbone
Management said that proprietary hotels comprise 40% of MINT’s net profit and posted 19% YoY earnings growth in 1Q13. RevPar will sustain double-digit expansion this year. The proprietary room inventory will rise by 10% in FY13, 9% in FY14 and 13% in FY15. System-wide Hotel RevPar dipped 1% YoY in 1Q13, due to low numbers for new hotel management contracts. Although the RevPar of managed hotels is weak, management fee income jumped 50% YoY in absolute terms. For the Hotel business as a whole, management has set growth targets of 3-4% for the occupancy rate and 6-7% for the room rate. 
Resilient Food business  
The firm has set long-term annual growth rate targets of 4-5% for SSSG and 8-10% for outlet numbers. As such, the Food business is expected to deliver organic sales growth of 12-15% per year over the next five years. The FY13 Food net profit growth profile exceeds that of its revenue outlook, due to a fatter NM. The Food operation in China will turn around this year, boosted by a new profitable brand—Beijing Riverside & Courtyard (acquired in late 4Q12). The recent investment in Breadtalk (10% bought from the capital market at SG$0.6977/share) will make for dividend income and capital gains.  
Ongoing residential income
Residential sales comprise two components—timeshare (Anantara Vacation Club, AVC) and houses/condos. AVC’s performance has exceeded the management plan with sales jumping from US$18m in FY11 when the operation started to $50m in FY12; sales could hit $80m this year. AVC will generate a significant profit in FY14. With regard to St.Regis condo, about 25% of the project is yet to transfer. Looking ahead, MINT will launch Anantara Estates, Phuket in 1Q14. The value of the project is preliminarily set at Bt2.4bn—16 villas with sales prices in the region of $5m/unit. We have yet to factor this planned venture into our model.