Central Plaza Hotel

Central Plaza Hotel Plc (CENTEL)

Maintain BUY with mid-2013 TP at Bt19. The Opportunity Day presentation left us
feeling quite positive. Although CENTEL’s share price has surged by 64% YTD and
outperformed the SET by 36% YTD, we believe there is room for re-rating from
catalysts that include steadily strong operations for its hotel and food businesses and
positive news flow such as entering into budget/economy hotels and additional food
brands. CENTEL remains our preferred stock in the tourism sector with outstanding
core earnings growth at 35% CAGR in 2011-14. We maintain BUY with mid-2013 TP at
Bt19/share.
Hotel business: Improvement continues. CENTEL targets 2H12 RevPar growth of
12-13% YoY, backed by a rise in occupancy rate to 66-67% (from 63.4% in 2H11) and 5-
6% YoY growth in ARR. July operations were good, with RevPar growing 6% YoY upon a
66.4% occupancy rate (from 65.2% a year ago) and 4% ARR growth. Key drivers are
hotels in Bangkok (Centara Grand and Bangkok Convention at Central World and
Centara Grand at Central Plaza Ladprao) and Phuket (Centara Grand Beach Resort).
Expansion on track. CENTEL added one hotel management contract at Samui in July.
In December, CENTEL will open Centara Ras Fushi Resort and Spa in Maldives, in which
it holds 75%. It will also add three more hotel management contracts in 4Q12. This will
bring hotels under operations at the end of 2012 to 36, consisting of 15 owned hotels
and 21 hotels under management contracts, with ~6,700total rooms.
Final quarter of guarantee provision for CTARAF. CENTEL’s agreement to
guarantee lease fee income for Centara Hotels & Resorts Leasehold Property fund
(CTARAF) will end in September 2012. CENTEL expects to book a Bt50mn loss on
guarantee provisions in 3Q12. We are positive toward the end of the agreement since
the provisioning was a major drag on earnings at ~Bt320mn in 2008-11.
Food business: YoY growth despite low season in 3Q12. Food business is normally
slow in the third quarter. However, in terms of YoY growth, operations for the food
segment was strong in July with 15% same-store sales growth, mainly from its major
brands KFC, Mister Donut and Auntie Anne’s.
Upcoming good positive news is a catalyst. For the hotel business, CENTEL plans to
announce two to three management contracts for budget/economy hotels in Thailand
in September. For the food business, it is negotiating with two international food
brands to operate franchises, with finalization expected this year. We are positive
toward these expansions since entering into budget/economy hotels will broaden
CENTEL’s coverage from its traditional five-star to the lower end segment, and allow it
to gain from the strong growth in price-sensitive tourists from the major growth
areas in emerging economic countries such as China and India. Also, the more resilient
revenue stream from the food business will help dilute risk when the hotel business is
in a downturn. The positive news on expansion is an upside to our earnings projection
and a catalyst for CENTEL’s share price, in our view.