Central Plaza Hotel

Central Plaza Hotel Plc (CENTEL)

Investment thesis
Our BUY rating stands on CENTEL with an unchanged YE13 target price of Bt44, a 10% discount to DCF value. An upcoming record 1Q13 core result should catalyze the stock (the firm will also report its cleanest balance sheet since 2009). There is scope for upside to our earnings forecast from the possible divestment of loss-making food brands. In the meantime, management is considering acquiring new food brands and selling hotels to an REIT. CENTEL trades at an FY13 PEG of 0.9x (impressive core profit growth of 36%) versus 1.1x for MINT.
Expect an all-time high 1Q13 core result
We anticipate a record core profit of Bt695m for 1Q13, up by 23% YoY and 122% QoQ. Net profit will dip 6% QoQ, due to the high base set by 4Q12 (a Bt458m marked-to-market gain on Centara Karon Hotel, Phuket). CENTEL increased its stake in the Karon hotel from 84% at YE12 to 99.3% on Feb 21, 2013. Estimated 1Q13 core earnings were driven by a record Hotel unit profit, up by 32% YoY and 174% QoQ—more than sufficient to offset the effect of a weaker Food profit (down by 10% YoY and 2% QoQ—higher costs squeezed margin). 
Hotel business beat the plan
The 1Q13 Hotel operation reported a record RevPar of Bt4,333, up 29% YoY, led by a high occupancy rate of 84% (up 9% YoY, beat its last peak of 81% in 1Q08) and 15% YoY growth in the mean room rate (boosted by the consolidation of Centara Maldives I). 1Q13 RevPar beat management’s target of 18-19% growth because of a higher occupancy rate than expected. Organic RevPar growth was 16% (far above the target of 7-8%). The Maldives I hotel performed very well with 56% YoY growth in RevPar; it is expected to post a net profit of US$3m for FY13 against a net loss of US$0.7m in FY12.
To divest loss-making food brands?
The QSR operation was weaker in 1Q13 than management budgeted. We anticipate that the Food unit will post 4% YoY SSSG and 15% YoY TSSSG (against FY13 targets of 5-7% for SSSG and 16-17% for TSSG).  Non-performing brands, such as Pepper Lunch and Beard Papa’s were to blame, we believe (Figure 8). CENTEL may divest the two loss-making brands. If it did so, our FY13 core earnings forecast would rise by Bt20m (about 1%).  
Q2013 low season for Hotel unit, but high season for Food
The 2Q13 Hotel bottom-line is expected to post a small loss (Bt6m loss in 2Q12), as it is low season for Thai tourism and the Maldives II property (opened in late March) will report red ink. But the Food business will see a QoQ jump—the second-quarter is its best period of the year (27-32% of the Food unit’s full-year profit). In sum, we anticipate the best low season in history for CENTEL in 2Q13—YoY earnings growth (but down QoQ).