Tourism: Hotel

Tourism: Hotel 

 

Thai hoteliers are getting in on the V-shaped recovery of Thai tourism as their occupancy rates of hotels in Bangkok reach and even exceed 1Q13 levels – the last good quarter before the political meltdown. However, consumption is recovering less exuberantly and this prompts us to downgrade same-store sales growth (SSS) for MINT’s and CENTEL’s quick service restaurant (QSR) businesses. We prefer a pure hotel play like ERW. 

Occupancy rate bouncing to high range. Thai tourism resumed its upward trend in 4Q14 and is now accelerating. AOT reports strong international passenger growth of 14% YoY in January and 25% YoY in February. We believe Chinese New Year can be thanked for this, as AAV reports a 50% YoY growth in its Chinese passengers in the first two months of this year. After talking with hoteliers, average occupancy in Jan-Feb for ERW and CENTEL’s Bangkok hotels were ~88% and ~85%, respectively, beating the last strong quarter (1Q13) before the political meltdown. Average occupancy for MINT’s owned Bangkok hotels is reported at ~78%, close to 1Q13’s. 

SSS recovery in low gear. In 2014, the QSR (or food) business provided 54% of CENTEL’s revenue and 42% of MINT’s. A talk with them reveals slow recovery in their QSR businesses. In Jan-Feb, CENTEL’s SSS was at +1.3%, similar to 4Q14’s 1.6%, dragged down by Mister Donut and Auntie Anne’s. For MINT, SSS was at ~0.9% in the first two months of the year vs. 0.4% in 4Q14. MINT guides that the slow momentum was due to weak food operations overseas (33% of food revenues) such as in Singapore, which reported negative SSS, while Thailand’s operations were doing better with SSS at ~4.0% vs. 3.3% in 4Q14. The snail’s pace of recovery makes cost control key to earnings growth. CENTEL says it has joined with Central Group to purchase general supplies (such as cleaning products) and thus obtains better prices.  

Earnings revision: lower CENTEL’s TP to Bt40/share. We maintain ERW’s core 2015 earnings projection at Bt381mn, back up from a loss of 

Bt154mn in 2014. There is little change in MINT’s 2015 core earnings forecast of Bt5.4bn since the negative from cutting our SSS assumption to

2% (from 5%) in 2015 is offset by higher contribution from Tivoli Hotels & Resorts Group, acquired in January this year. Our MINT TP is Bt38/share, 

but we note this will come down by ~10% after the stock dividend XD on April 17. For CENTEL, we have cut 2015 core earnings by 18% to Bt1.6bn 

(from Bt1.8bn). Behind this is lower 2015 assumptions for: 1) SSS of 2% (from 5%), and 2) occupancy rate of 80% (from 81%) and 3) average room rate 

(ARR) growth of 5% in 2015 (from 8%). The reduction in occupancy rate and ARR reflect the renovations at Centara Grand Island Resort & Spa Maldives 

(~10% of CENTEL’s hotel revenues) that will be in 2Q-3Q15 plus the impact from declining Russian tourists (~11% of CENTEL’s total guests). These revisions cut our 

CENTEL TP to Bt40/share (from Bt42/share). 

Prefer ERW. As we are heading into an uptrend for Thai tourism, we like ERW best for its high revenue exposure to the hotel business and high operational leverage that 

offers earnings surprise on the upside. Moreover, ERW is best positioned to gain from ‘de-seasonalization’, i.e. the blurring of seasonal lines in Thai tourism as short-haul visitors 

grow. More arrivals in low season lead to a higher occupancy rate and RevPar, an important earnings driver, and will erase the usual low season red ink.