Tourism

Tourism 

 

We believe 1Q15 will be a strong quarter for Thai hoteliers (CENTEL, ERW and MINT) backed by a V-shaped recovery of Thai tourism with record-high international tourists. With a greater exposure to the hotel business, we expect a strong earnings jump at ERW and CENTEL. The momentum is set to continue in 2Q15 as low season will be filled by more short-haul arrivals, mainly from China.  

 

Record high international tourist arrivals in 1Q15. According to the Department of Tourism, international tourist arrivals hit a record high of 7.9mn in 1Q15, up 24% YoY and 6% QoQ. The growth was mainly driven by Chinese tourists at 2.6mn, up 105% YoY and 35% QoQ, supplying the largest share at 26% of Thailand’s total international tourist arrivals. The huge influx of Chinese tourists was able to offset the plunge in Russian tourists of 53% YoY and 33% QoQ to 324K arrivals in 1Q15 (or 4% of Thailand’s total international tourist arrivals). 

 

Strong hotel operations. The hotel business accounts for 95% of ERW’s revenue, 45% of CENTEL’s and 38% of MINT’s. Thai hoteliers are getting in on the V-shaped recovery of Thai tourism as seen by the high occupancy rates in 1Q15 – 85% for CENTEL (vs. 75% in 1Q14 and 81% in 4Q14), 82% for ERW (vs. 65% in 1Q14 and 77% in 4Q14) and 73% for MINT (vs. 67% in 1Q14 and 70% in 4Q14). Bangkok hotels saw the strongest rebound off last year’s low base (politics). China is the largest feeder for all three hoteliers, supplying 16% of CENTEL’s total room nights, 13% of MINT’s and 13% of ERW’s in 1Q15. The good momentum is continuing, with a high occupancy rate in April (Songkran). On top of returning leisure tourists, according to CENTEL, meetings, incentives, conferences and exhibitions (a.k.a. MICE) are coming back, particularly international MICE, supported by political stability and the lifting of martial law. 

 

Slow recovery of food business. In 2014, Quick Service Restaurant (QSR) business provided 55% of CENTEL’s revenue and 42% of MINT’s. A talk with them reveals slow recovery. In 1Q15, CENTEL’s same-store-sales growth (SSS) was at +0.6% (vs. -1.8% in 1Q14 and +1.6% in 4Q14) dragged down by weak SSS of outlets in the provinces  (-1.1%) while SSS of outlets in Bangkok was healthier (+2.2%). Despite slow SSS recovery, we expect CENTEL’s EBITDA margin to fatten from cost controls and closure of loss-making outlets. For MINT, SSS was at +0.6% (vs. -1.8% in 1Q14 and +0.4% in 4Q14). MINT guides that its slow momentum is due to weak food operations overseas (33% of food revenues) such as in Singapore and China, which reported negative SSS, while Thailand operations were doing better with SSS at +3.0% (vs. -3.9% in 1Q14 and +3.3% in 4Q14). 

 

1Q15 earnings preview. We expect ERW and CENTEL to report strong core earnings growth in 1Q15 from high exposure to the hotel business and last year’s low base (Figure 3). We estimate ERW’s core earnings at Bt130mn (up from only Bt2mn in 1Q14 and 92% QoQ) and CENTEL’s core earnings at Bt670mn (up 34% YoY and 79% QoQ). For MINT, we expect 1Q15 core earnings of Bt1.6bn (up 13% YoY and flat QoQ). MINT’s smaller earnings growth reflects its greater resiliency last year during the unrest provided by overseas diversification.