Central Plaza Hotel

Central Plaza Hotel 

 

Investment thesis

We arranged a non-deal roadshow for local investors on July 15, with CENTEL senior vice president of finance Ronnachit Mahattanapreut and corporate finance director Nanthawan Vachirakomolpun. We reaffirm our bullish call on the company after its record FY15 core profit and its growth leadership among our coverage firms. On the back of the best earnings in its history, for FY15, a valuations rerating is deserved and should repeat its last high PER of 32x (1SD above its FY06-14 mean), implying a share price of Bt43 based on our FY15 EPS forecast. Our BUY rating stands.  

Hotel beat its last peak in 2013

Following record high hotel performance in 1Q15, CENTEL will continue to post the best April-June low-season performance in its history for 2Q15. Guidance is that its hotel occupancy rate was a very strong 81% in April, 75% in May and 75% in June against a 69% rate mean in 2Q14. RevPar will rise 15% YoY in April, 8% YoY in May and 8% YoY in June. Thus, RevPar in 2Q15 is expected to be around Bt3,200 (above its 2Q13-low-season peak of Bt2,869). In 2015, 

management is confident to deliver a new high occupancy rate of 81% (the last peak was 80% in 2013) and a RevPar growth target of 7%, with a 2% EBITDA margin expansion. 

Food efficiency is in focus—so far proven margin recovery

Margin recovery in its food business is outweighing sluggish sales growth.  SSSG was 0.8% YoY in April, 2.0% in May but turned negative in June. It will be a challenge for CENTEL to achieve its SSSG target of 2% for FY15 and 7% for TSSG. But, its food EBITDA margin has shown proven expansion, 3.4% YoY to 12.0% in 1Q15 and 4.9% YoY to 15.0% in 2Q15, due to lower raw material costs and enhanced efficiency. Thus, food EBITDA margin would beat its target of 12.0% for FY15 (9.0% in FY14).

Consensus earnings upgrade flow is possible

We judge that it will post an historical best 2Q15 core profit of Bt240m, zooming 476% YoY but slumping 71% QoQ on seasonality (hotels will run at a profit in 2Q15 despite low season). Thus, 1H15 earnings will gain 59% of our FY15 profit figure (64% of the street forecast). 

A positive surprise in margin will trigger the consensus earnings upgrade (our FY15 model is 8% ahead of the street). Mr. Ronnachit guided about a one-time expense (non-cash) on an accounting policy change at Centara Grand Ladprao’s leasehold land amortization in 3Q15, but with limited effect. 

What growth drivers exist over the long term?

International MICE business is expected to see strong recovery from 2016 (5% of hotel revenue). Cosi (its new budget hotel brand) expects to open 20-25 hotels in the next five years (six proprietary, the rest, managed contracts). Two new planned four-star hotels in Maldives (300 rooms), will add 7% to room inventory in 2018. Given the low net gearing ratio of 0.7x at end-March, CENTEL eyes new food-brand acquisitions.