Central Plaza Hotel

Central Plaza Hotel Plc (CENTEL)  

 

2015 is shaping up to be a better year for CENTEL. Though the Russians (~11% of CENTEL’s total guests) are staying home, other markets are clearly making up for them, as seen in the high occupancy rate of ~85% in Jan–Feb. This beat 1Q13 - its last strong quarter before the political meltdown. Though consumer spending will come back only gradually, control over costs will provide earnings growth for its food business. We see a trading opportunity as CENTEL’s share price has fallen 23% from its 6-month peak and is underperforming direct peer MINT by 18%. We maintain BUY with TP at Bt40/share.  

Despite fewer Russians, occupancy rate hit a record. We attended CENTEL’s opportunity day meeting yesterday; we feel more positive, particularly about the strength of its hotel operations. Concerns have arisen about the impact on CENTEL’s hotel operations, mainly at Pattaya and Phuket, of the drop in Russian tourists, who accounted for ~11% of CENTEL’s total guests in 2014. Russia’s economic and currency troubles slashed the number of Russian tourists coming to Thailand by 24% YoY in 4Q14 and 46% YoY in January. CENTEL reports a high ~85% occupancy rate in Jan–Feb, evidence of its ability to surmount this. Occupancy even beat 1Q13’s high – the last good quarter before politics scared tourists off. This suggests that other markets are making up for the Russians, particularly China. Though the average room rate (ARR) slipped 6% YoY due to the fall in high-yield tourists from Russia, the high occupancy rate lifted CENTEL’s revenue per available room (RevPar) 7% YoY. 

SSS recovery in low gear. In Jan-Feb, CENTEL’s same-store sales growth (SSS) was +1.3%, similar to 4Q14’s 1.6%, dragged down by Mister Donut and Auntie Anne’s as the return of consumption has been slow. CENTEL expects some improvement in 2Q15 on the seasonal long holidays (school holidays, Songkran). The snail’s pace of recovery makes cost control key to earnings growth. CENTEL closed 42 loss-making outlets in 2014 and will close another 40 this year. It has joined with Central Group to purchase general supplies (such as cleaning and paper products) and thus obtains better prices. This year, CENTEL targets 2-3% SSS (from 1.4% in 2014) with a widening in EBITDA margin to 10-11% (from 9% in 2014); these goals line up with our estimates.  

Bt26bn capex in 2015-20. As of Feb 2015, CENTEL operates 43 hotels with 8,020 rooms (48% owned and 52% under management). In 2015-18, CENTEL will open 5,351 more managed rooms and 353 more rooms in its owned economy hotel, COSI. This will give it 52 hotels with 13,724 rooms in 2018. It is budgeting Bt26bn in capex for 2015-20. Bt19bn will be spent on its hotel business, for renovation and expansion as well as new hotels in Maldives and JV projects in Myanmar and Sri Lanka. The remaining Bt7bn will be spent on its food business, adding more outlets and brands.  

Maintain BUY at TP of Bt40/share. This year is shaping up to be a far better one for CENTEL, with expected core earnings of Bt1.6bn or 43% YoY growth. However, we view its share price is performing well below what it should be, down 23% from its 6-month peak and underperforming direct peer MINT by 18% and this opens up a trading opportunity. We maintain BUY on CENTEL with TP at Bt40/share.