Central Plaza Hotel

Central Plaza Hotel Plc (CENTEL)
Investment thesis

CENTEL will post impressive hotel numbers for FY13 (the best RevPar growth in the sector). We expect a re-rating, prompted by record ROE of 21% and 30% profit growth in FY13. We have increased our YE13 target price to Bt26 from Bt17 to factor in our earnings upgrade and a 1% lower WACC to 11.5%, a 20% discount to DCF value (2% terminal growth rate). CENTEL trades an FY13 PER of 22.1x, below its 2006 peak of 25.7x. FY13 PEG is 0.7x (1.1x for MINT). Our BUY rating stands.

Earnings projection upgrades
We have revised up our net profit forecasts by 6% for FY13 and 8% for FY14 to incorporate the full-year consolidations of two Maldives hotels (stake increases from 25% to 75% for Maldives I in Dec 2012 and from 50% to 75% for Maldives in 2Q12) and food TSSG upgrades (from 12% to 17%in FY13). Our FY13 hotel RevPar growth assumption rises from 7% to 20% (occupancy rate from 70% to 72% and room rate growth from 5% to 15%, led by the hotels in the Maldives).

Two hotels in the Maldives will drive record RevPar for FY13
CENTEL will post all-time high RevPar of Bt3,297 for FY13, led by the high room rates for the two Maldives hotels—Bt14,000 for Maldives I and Bt9,500 for Maldives II (the FY12 mean room rate mean is only Bt3,989). CENTEL’s hotel portfolio RevPar growth is forecast at a muscular 20% next year, driven by both occupancy rate (up 3%) and a 15% higher room rate (organic hotel room rate growth of 5%).

Scope for earnings upside
CENTEL is negotiating with a JV partner to buy 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). Full ownership of the two properties would make for 2% upside to our FY13 model. 

Quarterly earnings uptrend in 3Q12-1Q13 (outperform the SET)
We estimate a net profit of Bt100m for 3Q12, up 214% YoY but down 43% QoQ (low season for the Food business). 3Q12 Hotel RevPar growth is estimated at 7.5% YoY (occupancy rate of 65%, up from 63% in 3Q11, and 3.7% mean room rate growth). Food TSSG is 25.8% (inorganic growth—Ootoya and Yoshinoya) and SSSG of 5.4%. Looking ahead, CENTEL will post strong YoY and QoQ profit growth for 4Q12 (outperforming the broad SET) and a record bottom-line for 1Q13.

More aggressive Food business growth
CENTEL has upped its Food outlet expansion guidance for FY12 from 70 joints to 75 making for a total of 678 at YE12. TSSG of 27% for FY12 (30% for 9M12).  For FY13 Food TSSG is assumed at 17% (SSSG of 6-7%) and additional new 70 outlets. New two brand launches and/or acquisitions are expected in the short- to medium-term.