Central Plaza Hotel

Central Plaza Hotel Plc (CENTEL)
 

Above our estimate: CENTEL posted a record core profit of Bt566m for 1Q12, up by 41% YoY and 654% QoQ. The result was 12% above our estimate (and 11% ahead of the street), due to greater revenue than assumed.
Results highlights: The impressive 1Q12 profit was driven by: 1) all-time high revenue of Bt3.6bn (up by 24% YoY and 22% QoQ) and 2) a lower SG&A/sales ratio, due to top-line expansion (operating margin rose from 15.8% in 1Q11 to 16.3% in 1Q12). The 1Q12  revenue breakdown was 51% Food and 49% Hotel. Food performed strongly—TSSG of 27.9% YoY and SSSG of 3.8%. Hotel revenue jumped by 26% YoY and 62% QoQ, driven by RevPar growth of 7% YoY and 43% QoQ (occupancy was 75% versus 71% in 1Q11 and 64% in 4Q11; the room rate inched up 1% YoY).
GM dipped to 57.8% in 1Q12 from 58.0% in 1Q11, due to a slimmer Food business GM related to cost pressures (CENTEL’s GM was 54.1% in 4Q11). The net gearing ratio declined slightly from 1.64x at YE11 to 1.61x at end-March
Outlook: We anticipate that 2Q12 earnings will rise YoY (but decline QoQ on tourism low season). The Ootoya restaurant chain (acquired in Sept 2011) will help boost the bottom-line YoY.
What’s changed? Although 1Q12 profit accounts for 59% of our full year projection, we maintain our model unchanged for the moment. Earnings will be seasonally weaker in 2Q-3Q12. Note that our FY12 forecast is already 12% ahead the consensus (1Q12 earnings represent 66% of the street’s FY12 number).
Recommendation: Our HOLD rating stands with an unchanged YE12 target price of Bt13.40, pegged to a 20% discount to DCF value (WACC of 13.5% and a 2% terminal growth rate). CENTEL doesn’t deserve a valuation re-rating in the short-term, as its 2Q-3Q12 numbers will be weak (about 20% of our full-year forecast). 1Q12 profit should prove to be the best quarter of the year. The stock isn’t cheap—a YE12 PBV of 2.7x, 2SDs above its FY06-11 mean.