Central Plaza Hotel

Better operations. We met with Dr. Ronnachit Mahattanapreut, SVP of Finance and Administration, Khun Nanthawan Vatcharakomolpun, Group Asset Management Director and Khun Siwichaya Limumetee, Investor Relations manager. The focus of the discussion was the improvement in CENTEL’s operations this quarter, particularly its food business where SSS is growing and EBITDA margin getting fatter. For its hotel business, hotels in Bangkok are recovering and CENTEL expects operations to be good in 2015. CENTEL is studying an REIT and expects concrete details in 1H15. 

Food business - Fatter EBITDA margin from strong SSS. We now feel better about the food business’s margin, with EBITDA at 10-11% in July-August from 9% in 1H14, boosted by high ~7% same-store sales growth (SSS) in July-August, a sharp bounce back from -0.9% in 1H14. Backing this is the return of consumer spending, especially in Bangkok, as consumers feel more secure about the political situation and are enticed by more marketing and promotions. CENTEL believes SSS will continue to be strong, bolstered by the improving economy – which it also believes gives it room to improve EBITDA margin by cutting back on marketing and promotions.

Guests are returning. Hotels in Bangkok are enjoying the absence of protests: occupancy rate at Centara Grand at Central World Hotel rose from 50% in 2Q14 to 60% in July, 78% in August and ~76% during 1-15 September, proof of greater confidence by tourists and event organizers – particularly local - who have begun to book events again. CENTEL says advance bookings suggest a strong 4Q14, with visitors responding positively to the political calm. In 2015, CENTEL expects tourism to recover sharply and hopes to jump its occupancy rate up to 80% in 2015 from 75% in 2014 with an ARR increase of 6-10% YoY in 2015 - already settled with wholesale agents. In CENTEL’s view, operations could be even stronger if martial law is lifted, as this would release pent-up demand from highly sensitive markets such as China (~9% of CENTEL’s total guests). 

REIT in 1H15. CENTEL is studying setting up an REIT. The preliminary fund size is at ~Bt5.0bn and the assets to be sold to it will be hotels in Thailand and abroad at which operations are strong. It expects to provide concrete details in 1H15.

Maintain BUY with TP at Bt42/share, expecting a strong earnings rebound in 2H14 and into 2015, aided by the return of tourism growth. Upside to earnings is the lifting of martial law that would bring more tourists back. Of hoteliers, CENTEL is a laggard: YTD share price has risen 43% vs. 72% for MINT and 51% for ERW.