Central Plaza Hotel

Central Plaza Hotel Plc (CENTEL) 

 

We estimate 3Q15F core earnings of Bt260mn up 55% YoY and 6% QoQ on strong hotel operations and only small impact from the bomb in mid-August. A good EBITDA margin will make up for the weak food business SSS in 3Q15; encouragingly, SSS was positive in October. We maintain our BUY call on CENTEL with mid-2016 TP at Bt44/share.  

3Q15 preview. Core earnings are estimated at Bt260mn, up 55% YoY and 6% QoQ, backed largely by its booming hotel business.  

 

-Hotel business (45% of revenue and 70% of net profit in 1H15): A talk with CENTEL reveals that average occupancy rate was 80% in 3Q15, higher than 73% in 3Q14 and 77% in 2Q15. CENTEL was impacted little by the bomb at the Erawan Shrine on August 17 since it has only one hotel, Centara Grand at CentralWorld, in the area, and recovery was rapid - occupancy rate of this hotel was at 78% in 3Q15 vs. 72% in 3Q14. Average room rate (ARR) was flat YoY and down 2% QoQ mainly due to higher mix of rooms with lower rate. As a whole, revenue per available room (RevPar) grew 9% YoY and 3% QoQ in 3Q15. 

 

- Food business (55% of revenue and 30% of net profit in 1H15): Same-store sales growth (SSS) was weak in 3Q15 with a contraction of 3.1%, steeper than the 1% contraction in 2Q15. Outlets in the provinces had an even larger contraction. By brand, the main drags were KFC, Mister Donut and Ootoya. CENTEL says the erosion in Mister Donut operations reflected last year’s high base from the introduction of the popular Hello Kitty donut. Ootoya was affected by a misunderstanding in the social media about a parasite found in food. Despite the weak SSS, EBITDA margin is still healthy at 13% vs. 9% in 3Q14, improved by the closure of loss-making outlets plus the benefit of lower raw material prices. 

 

Strong momentum continues in 4Q15. Occupancy rate continues high in October at 81%, above the 78% in the same period last year. SSS in October was positive at ~2% backed by improving KFC and Mister Donut, which introduced the Doraemon donut. We are maintaining our 2015 earnings forecast, which implies 4Q15F core profit of Bt426mn, up 14% YoY and 64% QoQ.  

 

2016 targets. CENTEL expects 2016 to be another good year. For its hotel business, in 2016, CENTEL targets an occupancy rate of 82% (from 81% in 2015), AAR increase of 7% (mainly from hotels in Bangkok and higher room rates in Maldives after 70% of the rooms completed renovation in 2Q-3Q15) and RevPar growth of 8%. For food business, CENTEL expects 3% SSS (from a contraction of 1-2% in 2015) and 35 new outlets (+4%).  

 

BUY with TP of Bt44/share. CENTEL’s share price has been relatively flat (pre-bomb) vs. +22% for MINT, implying the stronger earnings trend has not been priced in. We maintain our BUY call on CENTEL with TP of Bt44/share.