Central Plaza Hotel

Central Plaza Hotel Plc (CENTEL)

Core profit was as expected: CENTEL posted a core profit of Bt172m, up by 312% YoY but down 69% QoQ and in line with our model. However, net profit was Bt182m, above our estimate (Bt152m) and the street (Bt151m), due to a Bt24m FX gain brought above by an accounting policy change from the equity method to consolidation of a new hotel in the Maldives (CENTEL’s stake rose from 50% to 75% during the quarter).
Results highlights: The YoY jump in core profit was driven by: 1) unprecedented low season revenue of Bt3.4bn (up by 34% YoY), 2) a 0.8% YoY rise in weighted mean GM (Hotel GM expanded 3.3%; Food GM dipped 1.2%), and 3) a 2.2% decline in the SG&A/sales ratio, due to the bigger top-line. The 2Q12 revenue breakdown was 62% Food and 38% Hotel. Food revenue jumped 36% YoY, led by SSSG of 10.9% and inorganic growth (the Ootoya restaurant chain was consolidated in 3Q11). Hotel revenue jumped by 31% YoY (RevPar growth of 14% YoY; occupancy was 65% versus 58% in 2Q11; the room rate inched up 2% YoY).
The net gearing ratio was sustained at 1.64x at end-June.
Outlook: We forecast that 3Q12 core profit will triple YoY, driven by Hotel RevPar expansion of about 10% and Food TSSG of around 25%. On a QoQ basis, we conservatively expect a core earnings contraction, due to low season for the Food business and pre-operating expenses for the new hotel in the Maldives (scheduled to open in late 2012). Numbers should be strong, both YoY and QoQ, in 4Q12.
What’s changed? 1H12 net profit represents 69% of our full-year projection (74% of the consensus). Thus, we see scope for upside to both our forecast and the street number.
Recommendation: CENTEL deserves a valuation re-rating ahead of anticipated record earnings for FY12-13. The stock trades at FY12 PEG of 0.20x, far below the 0.26x it traded at during fourth-quarter high season. We maintain our BUY call with an unchanged YE13 target price of Bt17, pegged to a 20% discount to DCF value (12.5% WACC and 2% terminal growth rate).