Minor International

Minor International Plc (MINT)

Investment thesis
We prefer MINT, as it will beat the rest of our Tourism coverage in earnings, 1Q-3Q14 (sustained YoY profit growth for MINT against bottom-line declines for ERW and CENTEL).  A new residential project, Anantara Estates, Phuket (Bt2-3bn) will launch in 2H14, which could mean upside to our 4Q14 profit projection. Our YE14 target price remains Bt29, a 20% discount to DCF value. MINT currently trades at an FY14 PER of 22.1x, far below CENTEL’s 30.5x.
Strong Hotel performance, despite political chaos
MINT will post system-wide RevPar growth of 2.5% YoY for 1Q14 (a 10% YoY higher room rate, but occupancy rate slippage from 73% for 1Q13 to 69% for 1Q14). Its ex-Bangkok hotels performed well—YoY RevPar growth of 30% for overseas (80% occupancy rate and an 18% higher room rate) and 5% RevPar growth for provincial Thailand (76% occupancy rate and a 6% higher room rate). In April, system-wide hotel RevPar is expected to rise 7% YoY driven by a 10% higher room rate (2% occupancy rate slippage to 68%). Bangkok hotel RevPar is likely to ease from a 30% YoY dive for 1Q14 to a 20% YoY fall in April.
Poor Food SSS, due to weak domestic demand  
The Food operation is likely to report SSS slippage of 1.8% YoY for 1Q14, broadly in line with peers. However, TSS will post a 9% YoY rise, we believe, led by outlet expansion. MINT guides that outlet numbers increased 12% YoY to 1,568 at end-March. Management thinks YoY SSS growth will resume in April. The Food operation in China will turn around YoY in 1Q14. For FY14, the firm reiterates growth rate targets of 3% for SSSG and 8-10% for outlet numbers.  
Posted 1Q14 earnings growth will beat peers
We estimate a core profit of Bt1.4bn for 1Q14, flattish YoY but down 9% QoQ. Residential income is assumed to have dipped YoY and plunged QoQ, due to the absence of St.Regis condo revenue recognition during the quarter. MINT will lead our coverage in 1Q14, as it will deliver YoY Hotel revenue growth for the quarter against YoY declines of 5% for CENTEL and 25% for ERW (both CENTEL and ERW will report YoY bottom-line declines). 
Reaffirmed low season room rate sustainability
Despite the political chaos, MINT has proven a higher mean YoY room rate (up 19% for proprietary hotels, up 23% for managed hotels, up 27% for JVs). Its mean room rate for Bangkok hotels even rose 2% YoY. MINT assures that it won’t cut prices during 2Q-3Q14 low season because the firm focuses on luxury hotels. The firm targets a 5-6% higher mean room rate for FY14 (4% growth in our model). We are concerned that there may be heavy promotional pricing competition for non-luxury hotels in Thailand in 2Q-3Q14, which would mean risk to our bottom-line projections for CENTEL and ERW.