Central Plaza Hotel

Central Plaza Hotel Plc (CENTEL)

Event
We upgrade CENTEL to Outperform from Neutral as we are more positive on Thailand’s tourism outlook. International tourist arrivals in Nov 2012 came out far above our expectation. This could lead 4Q12 earnings to surprise on the upside. Given the potential for gradual improvements in the US and Europe economies, we expect rising numbers of tourists from both regions to strengthen Thailand’s tourism outlook over the next three years. We raise our EPS forecasts by 4-15% in 2012-20E and TP to Bt31 (from Bt24), implying upside of 20%.
Impact
- Tourist arrivals in Nov stronger than expected. International tourist arrivals in Nov 2012 reached 2.07m (+61% YoY), 15% ahead of our expectation. The 11M12 number was 19.76m (+14% YoY). Given that strong international arrivals will continue in Dec 2012, we expect international tourist arrivals to reach 22m (+15% YoY) vs. our previous forecast of 21m (+9% YoY). For 2013-14, we forecast tourist growth of 13% and 10%, respectively.
- 4Q12 earnings to surprise on the upside. Based on the strong tourist arrivals in 4Q12E, we expect CENTEL’s hotel numbers to beat management’s and consensus’s targets. We expect net profit growth of 347% YoY to Bt335m in 4Q12 (25% above the consensus forecast).
- Adding budget hotels to our projections.  CENTEL announced plans to operate and manage budget hotels under the “COSI” brand with a total of 30 locations opening in 2015-20. We are positive about this expansion as it could diversify CENTEL’s hotel portfolio into a strong growth market. We see the earnings contribution at about 1-5% of net profit during 2015-20.
- Less concerned about hotel oversupply in Bangkok. We are less concerned about hotel oversupply in Bangkok as the impact to its bottom line won’t be as much as we had expected. We did an earnings sensitivity and found that for every 5% change in hotel RevPar in Bangkok, the impact on EPS will be Bt25m, or ~2% of 2013E net profit.

Earnings and target price revision
-We upgrade earnings by 4-15% in 2012-20E to reflect the strong tourist arrival numbers and earnings contribution from CENTEL’s planned budget hotels. Our DCF-based target price is raised to Bt31 (from Bt24), implying a PER of 28x in 2013E.
Price catalyst
- 12-month price target: Bt31.00 based on a DCF methodology.
- Catalyst: Strong international tourist arrivals
Action and recommendation 
The stock is trading at PER of 23x in 2013E, higher than its regional peers’ 17x. However, we believe CENTEL deserves to trade at a premium PER due to its stronger EPS growth. CENTEL’s 2013E EPS growth is 30% vs. 12% for regional peers.