Minor International

Minor International Plc (MINT)

Investment thesis

Despite MINT’s 24% share price rally since end-Sept, we recommend letting profits run. The firm is at the early stage of a seasonal earnings uptrend (4Q12-1Q13 high season). There is also scope for long-term profit upside from new acquisitions and Anantara Residences Phuket. MINT is committed to 15-20% bottom-line growth per year (FY13 profit growth of 20% in our model). The stock trades at an FY13 PER of 21.0x; its Oct-March high season mean is 24.5x. Our YE13 target price is Bt23, a 20% discount to our DCF model (11.5% WACC and a 2% terminal growth).  Our BUY rating stands.

Good stats started in Oct—the first month of high-season
MINT’s Hotel numbers for Oct were impressive—RevPar growth of 15% YoY, led by a mean occupancy rate of 73% (70% last year) and a 10% increase to the room rate. Note that foreign arrivals to Thailand in Oct jumped 20% YoY to a record of 1.7m. Thus, 10M12 arrivals represent 88% of TAT’s earlier 2012 target of 20m people. Full-year tourist arrivals will set a new record of about 21m people. Oaks resumed a strong occupancy rate of 84% in Oct (76% in 3Q12) and 6% YoY room rate growth after weak numbers in 3Q12 (a 1% dip in RevPar, due to a regulatory issue in Sydney).
Heading to the big bounce in 4Q12-1Q13 earnings
We expect MINT to post 4Q12 profit expansion of 70% YoY and 40% QoQ (in contrast, SET earnings are forecast to dive 20% QoQ). Its bottom-line will rise further QoQ in 1Q13, the best quarter for Thai tourism (possibly a record core profit). We project hotel occupancy rates of 74% in 4Q12 (68% in 4Q11) and 75% in 1Q13 and YoY room rate growth of 5% in 4Q12-1Q13. The Food business will also perform well—we anticipate TSSG of 15% YoY in 4Q12-3Q13.
Timeshare will fully offset St.Regis condo sales contraction in FY13
St.Regis condo was 75% booked and 69% transferred at end-Sept.  We estimate that St.Regis condo revenue will dive 35% to Bt1.4bn in FY13. But income from the timeshare project will more than offset the effect of the contraction in St.Regis revenue; timeshare sales are expected to jump 60% from Bt1.5bn in FY12 to Bt2.4bn in FY13 (break-even in FY12 and black ink in FY13).
Incremental value from new residential project
Anantara Residences Phuket, Layan beach (32 rai near the Anantara Phuket Hotel, which is currently being re-branded from Boontarika) is expected to launch in 2H13. The residential project is worth at least Bt1.5bn and will feature 17-20 villas with pools and sales prices of US$3-5m/unit). The project will start contributing revenue in FY14, Assuming a 20% net margin, we estimate a Bt316-620m total profit (scope for earnings upside to our model).