Central Plaza Hotel

Central Plaza Hotelm Plc (CENTEL)

Investment thesis
At the analyst meeting yesterday, management pitched a positive surprise by upgrading its FY13 hotel business growth targets, following impressive numbers for 1H13. There may also be scope for upside to RevPar expansion, depending on room rate pricing power during 4Q13 high season. CENTEL trades at an FY13 core PEG ratio of 0.8x versus 1.1x for MINT. Our BUY rating stands with an unchanged a YE13 target price of Bt38, a 15% discount to DCF value.
Hotel business target upgrades
CENTEL revised up its FY13 RevPar growth target to 29% (from 20%), led by a higher occupancy rate projection of 77% (from 73%). The revision fine-tunes for 1H13 RevPar growth, which beat expectations at 31%—occupancy up 10% to 80% and mean room rate expansion of 15%. The FY13 organic RevPar growth target is is now 11% (up from 7-8%). In July, RevPar posted a jump of 29% YoY (an 83% occupancy rate and a 2% room rate recovery), proving its resilience.
Lower expectation for 2Q13 profit, but still up strongly YoY
We have cut our 2Q13 net earnings estimate to Bt192m from Bt240m (still up 75% YoY, but down 70% QoQ, due to seasonality) to factor in CENTEL guidance of a high effective tax rate tied to an adjustment for deferred tax. Net profit in 2Q12 will be restated. The firm will deliver the best RevPar growth in the sector—up 35% YoY, driven by a high occupancy rate of 75% (65% in 2Q12) and 16% YoY mean room rate increase. Excluding properties in the Maldives, RevPar still rose 9% YoY; a 10% higher occupancy outweighed the effect of a 6% seasonal ADR drop. The Food operation should post YoY rises of 11.7% for TSSG and 2.2% for SSSG.
To push up mean hotel room rate
With its high occupancy rate, CENTEL intends to increase room rates in the range of 6-10%, effective during 4Q13 high season. Most important, The firm plans to negotiate with tour operators for 2014 hotel contract pricing rises of 6-8%. Management guides for possible RevPar growth of 15% in FY14, driven by both occupancy rate and ADR (we currently assume only 9% RevPar growth in our FY14 model).
Considering establishing an REIT in 2014
CENTEL is studying the pros and cons of divesting the Maldives I property and some hotels under management contracts to an REIT. The proposed REIT would be sold assets on an ongoing basis, as it would be a major source of finance for long-term proprietary hotel portfolio expansion. The first tranche of asset sales to an REIT would possibly be next year, which would mean upside to our model.