Central Plaza Hotel

Central Plaza Hotel Plc (CENTEL)

Maintain BUY rating with 2013 TP at 43/share. At the Opportunity Day meeting, we felt positive toward the strong momentum of the hotel business – though in the short term the Thai tourism season is at its low - but do have some concerns about the slow food business, which is taking time to move forward. The highlight of the meeting was the revision of 2013 targets, which did not affect our forecast sufficient to lead to a revision. We remain positive for the long term with core earnings growth of 33% CAGR in 2013-14. We rate BUY on CENTEL with 2013 TP at Bt43/share.
Key takeaways from Opportunity Day meeting;
- 2013 revised target. After 1Q13 results, CENTEL revised its 2013 target to reflect a more bullish hotel business and less active food business. CENTEL expects the strength of Thai tourism to continue to boost its hotels and targets occupancy rate of 73% (vs. previous target of 70-71%) and 17% ARR growth (15-16% target before). This gives a RevPar growth of 20% (up from 18-19% previously). Turning to its food business, CENTEL revealed that 1Q13 SSS was a low 3.2% because of slow consumer spending and high competition, especially in Bangkok where 60% of CENTEL’s food outlets are located. In response, CENTEL has lowered its SSS target to 4% (from 5-7%), total system sales to 15-16% (from 16-17%) and new outlets to 76 (from 80). CENTEL has set 2013 CAPEX at Bt1.8bn with the major’s share - 66% or Bt1.2bn - designated for its hotel business. 
- Operational update – Hotels good in April. CENTEL said April was good for the hotel business, backed by a high occupancy rate of 80% (vs. 65% in 2Q12 and 84% in 1Q13). Food business was stable with SSS at 3%.
- Planned hotel expansion. In 1Q13, CENTEL opened one owned hotel, Centara Ras Fushi Resort & Spa Maldives, its second owned hotel in Maldives, and three hotels under management contracts. Coming up, CENTEL has 19 hotels under management contracts for a total 4,104 rooms that will open over 2H13 to 2015 – 1,535 rooms in 2H13, 1,788 rooms in 2014 and 781 rooms in 2015. If all open as scheduled, CENTEL will have 57 hotels with 11,444 rooms in its portfolio in 2015.
- Food plans. CENTEL is monitoring the low SSS and plans more active marketing by way of promotions plus expansion in the provinces to boost sales in 2H13; it will also exert greater control over costs. Lead brands will continue to be KFC, Mister Donut and Auntie Anne’s. It has finalized franchises for two more international food brands: one is expected to be launched at 3Q13; the other has no specific timeframe.
- Considering setting up REIT or property fund. CENTEL is studying setting up a real estate investment trust (REIT) or property fund to act as funding vehicle. If it does take this move, it plans to divest its first resort at Maldives - Centara Grand Island Resort & Spa Maldives - into the REIT/property fund.