The Platinum Group

The Platinum Group Plc (PLAT)

 

Investment thesis

Although we expect PLAT to remain in slow-growth mode until late 4Q18, we think the stock is still worth holding in the long term. Its healthy balance sheet and strong cash flow stream from existing assets should enable the firm to maintain a high payout ratio of 70%. At the current price, investors should enjoy good dividend yields of 3.3% for FY16, 3.5% for FY17 and 3.8% for FY19, before the company enters a high growth mode from FY19. We maintain our BUY rating on PLAT with a YE16 target price of Bt6.60.

Boosting revenue from existing assets

Despite the lack of new projects opening during FY16-17, PLAT still aims to grow its top line more than 10% a year on the back of the 5% rise in rental rate at Platinum Fashion mall and increasing yields of its hotel and food court. The hotel’s occupancy rate is expected to gain from 86% in FY15 to 90% in FY16, partly due to the low base set by bombings last year. Average room rate should rise 6%, driven by re-categorizing over-standard-sized room to “deluxe” and charging high floor rooms at higher room rates. For the food court, it targets being more selective in its choice of vendors. Only top sellers’ contracts will be renewed. 

The firm has also set aside space for short-term food stalls to add variety and differentiation as items offered will always be changing from time to time. However, due to our conservative assumptions, we estimate PLAT’s revenue growth of 7% in FY16 and 6% in FY17, lower than its target.

All new projects progress as schedule

Construction of The Market, its new shopping mall on Rajdamri road (next to BigC), is progressing as scheduled. The firm will start pre-leasing retail space in early FY17 and the project is expected to open in Sep 2018. Two of its hotels in Samui should break ground on schedule in 1Q17. Holiday Inn Express (200 rooms) is expected to open in 2Q18, while Holiday Inn Resort (150 rooms) will open in 4Q18. Moreover, construction will commence in 4Q18 on a 30k sqm office tower and a 380-room hotel on top of The Market, which should open in 2Q21. In the long term, PLAT targets smooth revenue growth by continuously adding new projects to its portfolio, which will comprise both greenfield developments and acquisitions.

Robust 1Q16 earnings growth 

We expect PLAT to deliver 1Q16 earnings of Bt183m, up 30% YoY and 6% QoQ. The strong expansion YoY would be mainly due to interest income on the huge cash pile it had received on IPO, the 5% YoY increase in rental rate at Platinum mall and the 6% YoY rise in hotel RevPar. However, we expect earnings growth to decelerate to around 10% YoY in 2Q16 due to the absence of any impact from the substantial YoY increase in interest income.