Central Plaza Hotel

Central Plaza Hotel Plc (CENTEL)

Investment thesis
Following the analyst meeting, we agree with CENTEL that Thai tourism hit its low point in May. But earnings won’t recover till 4Q14 high season. We suggest waiting for a good entry point (probably in Aug-Sept). CENTEL’s purchase of the remaining 50% stake in Kata Hotel (expected in 3Q14) will add 1% to our FY14 profit forecast. Our HOLD rating stands with an upgraded YE14 target price of Bt33 (up from Bt29), which reflects new BLS assumptions for market return (cut from 12.8% to 12.6%) and the risk-free rate (cut from 4.5% to 4.2%).
Management reiterates FY14 performance targets
CENTEL maintains its FY14 hotel occupancy rate target at 75% (down from 80% for FY13), its mean room rate growth target at 6-7% YoY and its RevPar growth target at 3-4%. We conservatively assume a 4% YoY RevPar decline (a 75% occupancy rate for and a flat room rate). If CENTEL were to refuse to offer deep price discounts in June-Sept, there would be scope for upside to our FY14 mean room rate assumption. For the QSR business, the firm targets flat YoY SSS and 8-10% TSSG (9.7% in our model). 
To post an operational Hotel business loss for 2Q14
We anticipate a 2Q14 core earnings dive of 40% YoY and 70% QoQ. The Hotel operation will post a loss for the quarter—we preliminarily estimate Bt60m, deeper than the Bt32m loss in 2Q13 and a reversal from a profit of Bt457m for 1Q14. Management guides for YoY RevPar growth of 2.3% for April-May (occupancy of 72%, down 4.6%, and mean room rate growth of 8.8%, driven by the Maldives)—a YoY RevPar dive of 27% for hotels in Bangkok, but growth of 2.6% for provincial hotels and 17.2% for Maldives hotels.
Food SSS turnaround in May
YoY SSS slippage eased from 1.8% in 1Q14 to 0.9% in April and switched to growth of 0.4% in May (the firm started marketing heavily in 2Q14). Assuming TSSG of 7% in 2Q14, Food profit for the quarter will drop YoY but bounce QoQ from the slim profit of Bt45m posted for 1Q14. The Food unit will recover in 2H14, led by greater consumer spending, particularly in the provinces (~49% of Food revenue).
Asset sale to an REIT in FY15, at earliest
Despite CENTEL’s de-leveraging trend—it guides that its interest-bearing debt/equity target will fall from 1.1x at YE13 to 0.9x at YE14—it intends to sell assets to an REIT. The fund size is expected to be Bt5bn for five hotels (three propriety hotels and two properties owned by other parties that are managed by CENTEL). The proceeds of the REIT will be reinvested in new properties or acquisitions of QSR assets. However, the REIT won’t launch till next year.