Central Plaza Hotel

Central Plaza Hotel Plc (CENTEL)

In line with our expectations

CENTEL posted a core profit of Bt188m for 2Q13, up 66% YoY but down 73% QoQ. The result was in line with our estimate and the consensus. Net profit was Bt222m, due to a Bt33m FX gain and an Bt11m marked-to-market gain on investments.

Results highlights

The YoY earnings jump was led by 18% growth in the top-line (comprising 42% Hotel, 58% Food) and a fatter core margin of 4.3%, up from 3.1% in 2Q12. CENTEL reported YoY income growth of 18% for its Hotel operation (driven by the consolidation of the Maldives I hotel) and 12% for Food. Hotel RevPar jumped 35% YoY (occupancy was 75% versus 65% in 2Q12; the room rate rose 16% YoY). Food TSSG was 11.7% YoY and SSSG was 2.2%. Mean GM inched up 0.4% YoY to 39% in 2Q13.
The QoQ decline was due to seasonality for the Hotel operation. Note that CENTEL reported Food earnings growth of 30% YoY and 88% QoQ for 2Q13. The net gearing ratio was stable QoQ at 1.2x at end-June (the best balance sheet since YE08).
Outlook
We anticipate that CENTEL will post strong YoY earnings growth for 3Q13 (it proved 25% YoY RevPar expansion for July—occupancy rate up 10% and mean room rate up 2%. In QoQ terms, we expect flattish numbers, given that the quarter is low season for tourism. Earnings will resume strong YoY and QoQ growth in 4Q13. Given a high mean occupancy rate (80% in 1H13), room prices will rise during 4Q13.
What’s changed? 
1H13 core profit represents 53% of both our forecast and the consensus. We won’t adjust our model yet, but there might be scope for upside to RevPar growth, depending on room rate pricing during 4Q13 high season.
Recommendation
We maintain our BUY rating on CENTEL with an unchanged a YE13 target price of Bt38, a 15% discount to DCF value. The stock trades at an FY13 core PEG ratio of 0.8x versus 1.2x for MINT. In the medium-term, there are three fairly likely earnings upside stories for the market: 1) negotiating with the holder of the remaining 50% stake in Centara Kata Beach, Phuket to buy it, 2) a new food brand and 3) asset sales to an REIT. The REIT would be sold assets on an ongoing basis, as it would be a major source of finance for proprietary hotel portfolio expansion. The first tranche of asset sales to an REIT would possibly be next year.