Central Plaza Hotel

Central Plaza Hotel Plc (CENTEL)
 

Investment thesis: ROE expansion from 10% in FY11 (following a loss in FY10) to 15% in FY12 (similar MINT’s ROE) will prompt a re-rating.  Historically strong ROE of 15% in FY05 pushed up CENTEL’s PBV to a peak of 2.6x. Its YE12 PBV is currently only 2.2x. Although its FY12 PER of 15.9x exceeds MINT’s 15.1x, its PEG is much lower at 0.3x against MINT’s 0.5x, due to its higher profit growth profile of 53% (29% for MINT). We maintain our TRADING BUY rating with an upgraded YE12 target price of Bt13.40 (from Bt10.80), as we have cut our discount to DCF from 40% to 20% (WACC of 13.5% and a 2% terminal growth rate).
Scope for a record 1Q12 profit: We expect CENTEL to report good core earnings of Bt143m for 4Q11 (up by 54% YoY and 348% QoQ). However, our bottom-line estimate is weak at Bt63m (down 32% YoY but up 97% QoQ) due to an Bt80m yield guarantee provision for CTARAF property fund. Now for the good news—1Q12 profit is likely to set a new record on a strong post-flooding Hotel recovery and high season—QTD, the mean occupancy rate jumped to 76% (71% in 1Q11), despite a YoY room rate increase, while management guides that QTD Food TSSG is in double digits. 
Resilient Food performance & inorganic growth: In a positive surprise, CENTEL’s QSR operation proved resilient to the 4Q11 flooding in Bangkok—SSSG of 13% YoY and TSSG of 24.5%. In FY12, we anticipate organic revenue growth of 10% from brands acquired before 2011 and an additional 10% top-line growth from Ootoya (a Japanese restaurant chain bought in 4Q11). Note that our FY12 TSSG assumption of 20% is more conservative than CENTEL’s guidance of 25-27%.
Five Hotel business drivers: 1) Resumed full service of the Centara Grand Ladprao following renovation (10% room rate rise and an occupancy bounce from 51% in FY11 to above 60% in FY12), 2) an 80% occupancy rate for Grand Pattaya (74% in FY11), 3) a 70% occupancy rate for the Grand Phuket (64% in 2011), 4) a room rate increase at Grand Central World (flat YoY in FY11; up 9% YoY in Jan 2012) and 5) hotel management fee income growth (CENTEL’s FY12 target is Bt180m in fees, up from Bt130m last year).