Central Plaza Hotel

Central Plaza Hotel Plc (CENTEL)
Buoyant tourist arrivals should continue to benefit Centel’s hotel and F&B businesses. Hotel management should lead growth in its hotel business, while new food brands and aggressive expansion should lead that of its F&B business. We model in a 28% EPS CAGR for the next three years. We initiate coverage with an Outperform rating and THB41 target price, based on 28x CY14 P/E, 1.5SD above its 5-year historical average. Strong tourist arrivals, the launch of new hotels and strong earnings growth should catalyse its share price.
 
Aggressive hotel expansion
Centel plans to add 19 hotels (+51%) by the end of 2015. This should boost its hotels to 57 with 11,444 rooms, from 38 with 7,340 rooms. The expansion will largely involve more hotel-management contracts, which do not require much capex. Its Centara brand has been gaining popularity with both tourists and Thais, allowing it not only to charge higher room rates but also to expand its network more quickly.  
 
Solid F&B outlook
With revenue from F&B forming 56% of its total, Centel has strong cash flows from its F&B operations to finance its hotel expansion. F&B also contributed one-third of its net profit last year, providing a solid cushion for its more-volatile hotel business. New food brands, 8-10% store expansion p.a. and decent same-store sales growth are expected to provide further impetus for its F&B business over the next few years.  
 
Internal cash flows enough to finance capex
We expect its capex to be slightly above THB2bn each year, which can be financed by its internal cash flows. As such, its net gearing is expected to come down below 1x next year. It can also inject its hotel properties into its property fund to raise money as it did in 2008. Therefore, cash calls are not likely.