Minor International

Minor International Plc (MINT)

Investment thesis
MINT’s acquisition of a restaurant chain in China constitutes a share price catalyst; we anticipate that the operation in China will turn around by late next year. We will revisit our model soon in order to factor the deal into our target price. In the meantime, our YE13 target price is Bt23 (a 20% discount to DCF, 11.5% WACC and a 2% terminal growth rate). The stock trades at an FY13 PER of 21.8x, below its 2007 PER of 23.0x.
The firm is at the early stage of an earnings uptrend. We expect both YoY and QoQ profit growth in 4Q12 and 1Q13. There is also scope for long-term bottom-line upside from Anantara Residences Phuket.

Restaurant chain acquired in China
MINT bought an effective majority stake Beijing Riverside & Courtyard (Riverside), a chain of casual-concept restaurants in China specializing in Sichuan barbecued fish (established in 2005). Riverside is expected to have 22 restaurants in Beijing and Shanghai by YE12. The total investment cost is Bt1.2bn—an initial 49% stake bought from a financial investor and a convertible loan from which MINT could increase its holding by up to another 30% (minimum 11%) during the next two years (by FY14), subject to a performances hurdle. In sum, MINT will hold at least 60% of Riverside in FY13.

Cheap acquisition price
Riverside is a profitable company with revenue forecast at Bt900m for FY12. SSSG typically ranges 3-6% per year with rapid outlet expansion in recent years. The firm is debt-free. The acquisition price (Bt1.2bn) implies an FY12 PER of 12-16x, which is reasonable, in our view.

Riverside to add at least 2% to FY13 profit
MINT guides for FY13 revenue of Bt1.2bn from Riverside. Assuming NM of 10% and a stake of at least 60% in FY13, it would add at least Bt72m in net profit, equal to 2% of our current FY13 forecast. Riverside is also expected to open 7-10 new outlets per year in 2013 onward.

Turnaround ahead in China
Before the acquisition of Riverside, the market agreed that MINT’s Food performance in China was squeezing its bottom-line (net losses of about Bt150m per year). MINT’s Food operation in China has been posting losses because of a lack of scale (high fixed costs). With the acquisition of Riverside, the number of outlets it has in China will double from 19 (its brands in China are The Pizza, Sizzler and Thai Express) to 41 by YE12. Importantly, because Riverside will contribute a profit in MINT’s first full year of ownership, the Food operation in China will turn around by late FY13 (black ink for FY14).