Minor International

Minor International Plc (MINT) 

 

Investment thesis

MINT’s acquisition strategy will lead it to earnings of 15-20% CAGR for FY15-19, back on track. A short-term catalyst is that it is likely to post a record high quarterly core profit for 1Q15. Despite the 2Q-3Q15 low season, MINT’s hotels will run at a profit versus peer losses thanks to its geographical diversification. The stock trades at FY15 PER of 26.0x, the lowest multiple of our tourism coverage. Our BUY rating stands, with a DCF-derived YE15 target price of Bt41.5 (a 5% discount to the DCF value, 9.4% WACC and a 2% terminal growth rate). 

Earnings accretion of two big deals to offset dividend stock dilution

The surprise stock dividend’s timing (at a ratio of 10 existing common shares for one dividend stock, XD on April 17) is well managed, as a 9% dilution of the share increase will be fully offered by the profit accretion from two big acquisitions in Jan 2015—Sun International (six hotels in Africa with more 1,000 rooms) and Tivoli (six hotels in Brazil and Portugal, more than 1,600 rooms). The deals bring in 15% of hotel and mixed-use revenue in FY14, which is expected to rise to 16% for FY19. Assuming equal net margin from its hotel business, those deals are estimated to add Bt460-700m/year or 9% earnings accretion to our for FY15-19 model. 

Diversification now global 

Through the Tivoli takeover, MINT adds new territories in Europe and South America, making it a truly global company. With presence in 35 countries, such as in Maldives, Australia, and China, and in the Middle East, Africa, Europe and South America, its geographical diversification will mitigate country risk. The top-line portion from ex-Thailand operations is planned to rise from 35% in FY14 (44% for hotel businesses and 33% for food) to 48% in FY19 (56% for hotel and 49% for food). 

Strong growth performance for FY15

We reiterate our strong core profit growth forecast of 18% for FY15 (7% growth for FY14). Management targeted system-wide hotel RevPar growth in the mid-tenth for Y15. The occupancy rate mean is expected to bounce from 66% in FY14 to 70% in FY15 coupled with a 5% higher mean room rate. The inventory expansion is the key earnings growth driver for FY15, as MINT’s total propriety hotel rooms will jump 84% YoY to 5,056 and 95% for JV to 2,484. The Residences by Anantara at Layan Beach, Phuket (with 15 luxury pool villas and a Bt5bn project value) is planned to launch in 2015. Food SSSG is 2-3% and 12-15% for TSSG.  

Manageable balance sheet without recap risk

MINT’s cash flow and balance sheet will back committed CAPEX (about Bt40bn for FY15-19) and new opportunities (Bt20bn of acquisition budget) without recap risk. Its net gearing ratio of 1.0x at YE14 is far below the 1.3x internal ceiling policy and it has secured a credit facility of Bt22bn for new acquisitions. It generates strong EBITDA of at least Bt9bn per year.