Central Plaza Hotel

Central Plaza Hotel Plc (CENTEL)  
 
Investment thesis: CENTEL’s share price has rallied 19% since we went tactically bullish on the sector on July 9. As such we expect profit-taking in the short-term on expectations of QoQ bottom-line slippage in 3Q12 (pre-operating expenses for a new hotel in the Maldives and a Bt40-50m provision for CTARAF). CENTEL’s multiples are no longer as cheap as when we went bullish six weeks ago—its FY12 PER jumped from 17.3x to 20.3x (above MINT’s PER of 18.7x). However, we view that the stock will again perform strongly in late Nov-Dec on confidence in 4Q12 high season numbers. Our YE13 target price stands at Bt17.
Hotel growth outlook: 2H12 Hotel RevPar growth is expected at 12-13% YoY, up from 9% YoY in 1H12. Both volume and pricing will drive RevPar—an occupancy rate of 67% in 2H12 (64% in 2H12) and 5-6% YoY growth in the mean Hotel room rate. In Dec 2012, CENTEL will open a new hotel in the Maldives.
Strong Food business: The FY12 Food operation may beat management guidance—1H12 Food TSSG was 32.2% YoY and SSSG was 7.4% against stated FY12 company targets of 26-28% and 5-6%, respectively.
Full acquisition of two hotels in Phuket: CENTEL is in the process of increasing its stakes in two hotels on Karon and Kata beaches, Phuket (it already has 84% of the Karon Beach hotel and 50% of the Kata property). The deals are expected to be completed by YE12. Full ownership of the two properties would make for 3% upside to our FY13 model (and the consensus).
New budget hotel brand: The company plans to launch a new price segment (a mean room rate of Bt1,000/night versus a Bt3,921/night 1H12 average) in late Sept. CENTEL expects to sign two or three management contracts. The objective is revenue diversification.
Eyes on property fund (instrument for long-term growth): Management is considering expanding the Hotel operation through a property fund. Asset monetization (sales of proprietary hotels to a property fund) would free up cash to invest in new projects. There would also potentially be gains from asset sales and the balance sheet would be boosted.
 
Recommendation and valuation
Long-term BUY with a YE13 target price of Bt17.00: In the short-term, CENTEL may be subject to profit-taking, following its sharp price rally during the past couple of months. Its multiples are no longer as cheap as when we went bullish on July 9—its FY12 PER jumped from 17.3x to 20.3x (above MINT’s PER of 18.7x).
For the long-term, we reiterate our BUY rating. Our YE13 target price remains Bt17, pegged to a 20% discount to DCF value (12.5% WACC and 2% terminal growth rate). In our view, a good time for a tactical BUY would be two months ahead of the fourth-quarter high season, as the stock price would later be boosted by confidence in 4Q12 numbers. Furthermore, the firm is in the process of buying the stakes it doesn’t already own of two hotels in Phuket, which should boost YoY profit growth next year. Over the long-run, further investments or acquisitions (among either the Hotel and Food operations) would mean scope for earnings upside.