Minor International

Minor International Plc (MINT)

Investment thesis: MINT’s multiples look cheap, given that we can expect a quick earnings recovery in 1Q12, led by profit from Oaks (none in 1Q11) and the purchase of another 30% stake in Thai Express (now 100%). The stock trades at an FY12 PER of 14.6x, down from an FY06-11 mean of 23.7x, and a PBV near its 4Q08 trough. Our new YE12 target price is Bt13.60 (up from Bt13.20), a 40% discount to DCF value (13.5% WACC and a 2% terminal growth rate). New acquisitions and residential projects would mean scope for earnings upside. Our BUY rating stands.
Profit forecast upgrades: We have revised up our earnings projections by 3% for FY12 onward to factor in the additional 30% stake in Thai Express on Dec 21, 2011. The price was cheap in our view—an FY11 PER of just 6.5x and 4.2x price/EBITDA. Although Thai Express’s performance isn’t very impressive, due to intense competition in Singapore, the numbers have improved substantially—TSS turned around from a 1.9% contraction in 9M10 to growth of 1.4% in 9M11.
Background: MINT purchased the remaining 30% of Thai Express Concept Pte Ltd for S$16.8m financed by debt and internal cash flows (it has owned 70% since 2008). Thai Express is a multi-brand food operator—54 proprietary outlets in Singapore and 12 franchised outlets in Malaysia, Vietnam, Australia, India, Mongolia, Korea and Singapore.
Good Food business organic growth: Management is confident that MINT’s Food business will remain good (about 40% of MINT’s core profit)—SSSG of 3-5% per year and 8-10% growth from new branches. Thus, double-digit TSSG will continue in FY12 (we model for 12% growth).
Quick earnings recovery in 1Q12: Surprisingly, MINT posted double-digit YoY Food TSSG for 4Q11, despite the flooding. We expect low single-digit YoY growth in Hotel RevPar for 4Q11 (and a seasonal QoQ jump), as ex-Bangkok hotels should have eased the effect of the weak Bangkok numbers for the quarter. 4Q11 core profit should report a YoY and QoQ rise, but the bottom-line will slip because of an asset write-off (a factory in Nava Nakorn Industrial Estate was inundated). The earnings recovery will be swift in 1Q12 (YoY and QoQ growth). We forecast Hotel occupancy of near 60% during 1Q12 high season.