Minor International

Minor International Plc (MINOR) 

 

MINT is poised to outperform its sector in the aftermath of the bomb, thanks to the greater resiliency provided by both the broader reach of its business and lower exposure to Bangkok. We expect profit to improve in 2H15, backed by a better food business and the start of sales of its residential project in Phuket. Even after a rebound after the bomb, share price is down 15% YTD to trade at 25x 2015PE, below the 26x for CENTEL, its direct peer. We have revised our forecast, which gives a new mid-2016 TP of Bt31/share, down from the end-2015 TP of Bt35, offering 25% upside. We upgrade to BUY (from Neutral). 

 

Outperformer in rough seas. Of hoteliers, MINT's earnings are broadest based, extending from Thailand to several countries abroad; it also has lower revenue exposure to hotels as a whole (42% of total revenue vs. 96% for ERW and 47% for CENTEL) and specifically to hotels in Bangkok (7% of MINT's total revenue vs. 64% for ERW and 12% for CENTEL) (Figures 1-2). This means MINT's earnings are resilient in rough seas with lower core margin fluctuation: this was seen during past incidents that brought turmoil to Thai tourism (Figure 3). Looking back to the 2006 New Year’s Eve bomb we see a negative market reaction to all tourism plays - but MINT was pulled down least: its deepest price contraction was 16.8% vs. 17.3% for CENTEL and 30.3% for ERW. During recovery, MINT’s share price then outperformed peers (Figure 4).  

 

Minimal impact from the bomb at Erawan Shrine. At its analyst meeting, MINT said that its two hotels near Erawan Shrine, Anantara Siam Bangkok and St. Regis, have seen some room cancellations, mainly group tours. Occupancy at Anantara Siam Bangkok is running at ~65%, down from ~80% before the bomb. However, we anticipate only small impact on earnings as these two hotels contribute just ~4% of MINT’s total revenue.  

 

Despite earnings cut, positives ahead in 2H15. We revised down MINT's core earnings by 14% in 2015 and 16% in 2016 mainly to reflect the weaker food business in 1H15. Our changes included: 1) lower same-store sales growth (SSS) to 0% in 2015 (from 2%) and 3% in 2016 (from 5%) and 2) higher SG&A expense to revenue of 49.2% in 2015 (from 48.3%) and 48.0% in 2016 (from 47.3%). We expect better earnings in 2H15 backed by: 1) improving food business, with cost controls to pay off with a better margin in 4Q15 and small growth in Thailand SSS in July from flat in 2Q15 and 2) the onset of sale of luxury villas at Anantara Residence Layan, Phuket (project value ~Bt5.0bn with 15 villas at ~US$10mn/unit); deposits have been made on six units and MINT expects to book revenue on three to four units in 4Q15. 

 

Upgrade to BUY with TP of Bt31/share. We upgrade MINT to BUY (from Neutral) and the earnings revision plus roll over to mid-2016 gives a new TP of Bt31/share (down from end-2015 TP of Bt35/share). The storms around Thai tourism generally blow themselves out soon and we view MINT as an outperformer with resilient earnings. Though share price did come back up after last Monday's bomb, it has fallen by 15% YTD and it is trading at 25x 2015PE, below 26x for CENTEL, its direct peer.