Minor International

Minor International Plc (MINT) 

 

Investment thesis

In the short term, MINT looks unattractive due to its underperforming hotel RevPar to peers and dividend stock dilution to FY15 EPS. However, for long-term investors, this presents a good opportunity to accumulate on the price shortfall, as its acquired hotels will start to payoff from 4Q15 onward. It trades at the lowest multiples of our tourism coverage. Our DCF-derived YE15 target price is Bt38 (5% discount to the DCF value, 8.5% WACC and a 2% terminal growth rate). Our BUY rating stands. 

Good hotel profit despite poor statistics

MINT’s system-wide hotel RevPar is expected to dip 5% YoY for 2Q15: with an occupancy rate mean of 65% (up 4% YoY) but a room-rate drop of 11% YoY. Hotel room rates in 2Q15 are weak—a YoY fall of 9% for proprietary hotels and down 50% for joint ventures (due to lower room rates at Sun International hotels in Africa and Tivoli in Brazil and Portugal), YoY down 17% for Oaks (on THB/AUD depreciation), and down 5% for managed hotels (weak in the Maldives). Despite poor hotel statistics dampened by the product mix of new hotels, we anticipate hotel core profits to grow 9% YoY for 2Q15 for two reasons. First, proprietary hotels, which is 52% of hotel revenue, showed good RevPar growth of 7% YoY. Second, the inventory accretion of two recent acquisitions (Sun International and Tivoli) will drive total rooms 27% YoY to 16,774 in 2Q15. 

Food SSS turns negative in 2Q15—unable to resist industry trend

Food SSS drops 1.6% YoY in 2Q15 (last negative SSS was in 1Q14 during the Bangkok shutdown, reaffirming slow recent consumption in Thailand. But, outlet expansion remains on track, as TSSG is 11.1% YoY in 2Q15. We believe in a YoY sustainable margin for MINT due to its high efficiency. Thus, 2Q15 food profit will maintain YoY despite negative SSS.  

Unexciting results expected in the short term

We forecast net profit of Bt650m for 2Q15, up 5% YoY but down 70% QoQ because of seasonality. Note that MINT has a high base set for its bottom line in 2Q14 and 1Q15 regarding extra gains of Bt69m in 2Q14 (marked-to-market gain on its investment in Serendib Hotel Plc, Sri Lanka) and Bt650m in 1Q15 (gain from the business acquisition of Sun International Ltd). Earnings in 3Q15 remains in the low-season, and profit should be flat YoY and improve moderately QoQ.    

To resume strong results in 4Q15 and onwards

Core earnings in 2H15 are estimated to comprise 55% of our FY15 forecast (in line with its two-year historical average). MINT profits in 1H15 are yet to be attractive as the benefits of takeovers (hotels in Africa, Brazil and Portugal) are gradually ramping-up. In 2H15, MINT should resume core profit growth of 7% YoY and 20% HoH against slippage 11% HoH in 1H15. The Residences by Anantara at Layan, Phuket (with 15 luxury pool villas and a Bt5bn project value) will be the upside to earnings in 4Q15.