Central Plaza Hotel

Central Plaza Hotel Plc (CENTEL)

Investment thesis
We maintain our BUY call, with a higher YE13 target price of Bt29 (up from Bt26) to factor in our upgraded earnings forecast (unchanged 11.5% WACC, 2% terminal growth rate and a 20% discount to DCF value).   CENTEL will lead the sector in FY13 in RevPar growth (17%) and room rate expansion (16%), due to a changed product mix (consolidation of two five-star hotels in the Maldives). Earnings will set new records through FY12-14—a CAGR of 50%. ROE in FY13 will hit 22.4% (the last peak was 19.4% in FY04). CENTEL trades an FY13 PER of 22.4x, below its peak of 25.7x in 2006. FY13 PEG is 0.8x (against 1.1x for MINT).

4Q12-to-date performance beat management guidance …
Oct-Nov Hotel numbers exceeded all expectations—an occupancy rate of 72% (up 9% YoY) and RevPar growth of 22% YoY. Hotel operations in December are normally the strongest of the quarter, so actual 4Q12 numbers will surely beat CENTEL’s target. We expect a 23% YoY jump in RevPar in 4Q12 (the firm earlier guided for 19%). Occupancy is likely to hit 73% for the quarter (the guidance was 71%); the mean room rate should post 8% YoY growth. Food TSSG in 4Q12 may exceed 21%.

…prompting us to upgrade our earnings forecast
We have revised up our net profit forecasts by 9% for FY12 and 8% for FY13 to factor in fatter core margin assumptions for FY13 (up 0.8%) and FY14 (up 0.7%), based on the strong 4Q12 numbers. Our new model suggests impressive core profit growth of 29% for FY13 and 21% for FY14. The drivers of FY13 earnings will be 17% growth in Hotel RevPar (occupancy rate of 71%, room rate growth of 16%, boosted by the hotels in the Maldives) and 17% TSSG for the Food business.

Substantial jumps in 4Q12 and 1Q13 results
For 4Q12, we forecast a net profit of Bt335m, up by 347% YoY and 269% QoQ (weak Hotel numbers during 4Q11 flooding in Bangkok). Hotel operations in Bangkok (40% of Hotel revenue) were strong YoY in 4Q12-to-date (RevPar growth of 80% for Centara Grand Central World and 44% for Sofitel Centara Grand Bangkok). CENTEL will post a record profit for 1Q13 (up by 18% YoY and 99% QoQ). 

Scope for upside?
We have yet to price the planned budget hotel brand (Cosi) into our model, as the first hotel opening isn’t slated until FY15 (Cosi Ratchada. CENTEL targets having 30 Cosi hotels by YE20 (4-5 proprietary properties, the others management contracts). Furthermore, there is scope for earnings upside from buying the stakes in two hotels on Karon and Kata beaches, Phuket, that CENTEL doesn’t already own from the administrator of Lehman Brothers’ assets. CENTEL already has 84% of the Karon Beach hotel and 50% of the Kata property. New acquisitions and/or investments could mean more upside to our model.