Minor International

Minor International Plc (MINT)
 

Investment thesis: Stock price downside is limited. MINT has mostly priced in the negative effects of flooding in Bangkok and global economic uncertainty. It trades at an FY12 PER of 13.9x (about 2SDs below its FY06-10 mean of 24.5x). MINT’s PBV is 1.9x (1SD below its mean of 3.3x). Our new YE12 target price is Bt13.20 (down from Bt13.70, due to an earnings forecast cut), a 40% discount to DCF value (13.5% WACC and a 2% terminal growth rate). Our BUY rating stands. We anticipate details of new residential projects soon (scope for long-term bottom-line upside). 
Profit forecasts cuts: We have revised down our earnings projections by 14% for FY11 and another 8% for FY12 to factor in the negative effects of flooding in Bangkok in 4Q11—slow QSR same-store-sales (because of outlet closures) and hotel reservation cancellations, particularly for three hotels in Bangkok (Anantara Riverside, Four Seasons and St.Regis)—see Figure 1. 
4Q11 core profit not bad; bottom-line weak: Under our updated model, we expect YoY and QoQ core profit growth for 4Q11, led by strong ex-Bangkok hotel performances and high season. However, net profit will plunge YoY and QoQ, due to the high base set by 3Q11 (a record high bottom-line because of a one-time gain) and an asset provision of about Bt200m for the flooding (insurance doesn’t fully cover the loss and the payout won’t be until 2012).  
Quick recovery for hotel and food, but retail trading will be slow: Management guided that hotel numbers will normalize within two months of the waters receding. The occupancy rate in Dec 2011 will increase MoM (no room rate cut). QSR will take three months to recover. But the retail trading operation (fashion and cosmetics) may take six months to normalize (trading comprises only 7% of MINT’s revenue).
Additional new residential projects would mean scope for earnings upside: MINT plans to launch three additional residential projects in 2014-16. The firm recently purchased land in Phuket and is negotiating for other locations. Thus, it should unveil the details of new residential projects by early next year, then start building in 2H12. Construction will take two years and revenue recognition should start in 2014. The planned residential projects are not factored into our current model.