Central Plaza Hotel

Central Plaza Hotel Plc (CENTEL)

 

We joined CENTEL’s Opportunity Day presentation yesterday, which reinforced our positive view of a continued uptrend in earnings, backed by strong hotel operations and improving food margin despite the slow recovery of same-store sales growth (SSS). Thai tourism recovery has been in place since October last year and CENTEL is expected to report stellar core earnings growth at 61% YoY in 2015 – yet its share has underperformed the market by 9%. We maintain BUY on CENTEL with a TP of Bt42/share. 

Record high occupancy rate in 1Q15, continuing strong in 2Q15. CENTEL is traversing the V-shaped recovery in Thai tourism, with average occupancy rate at a record-high at 85% in 1Q15, suggesting that other markets are making up for the drop in Russian tourists, particularly from China. China has climbed to become CENTEL’s largest feeder, accounting for ~16% of total room nights in 1Q15 (from ~7% last year) while Russia has sunk to ~9%. CENTEL says occupancy rate is continuing high at ~80% QTD, beating the 75% in 2Q13, a period of strength for Thai tourism before the political meltdown. Not only are leisure tourists returning, but MICE (meetings, incentives, conferences and exhibitions) bookings are coming back, particularly international, for 4Q15-1Q16, supported by political stability and the lifting of martial law.  

Small impact from hotel renovation in Maldives. 19% of CENTEL’s hotel revenues in 1Q15 came from its two hotels in Maldives. CENTEL plans to renovate the 5-star one, Centara Grand Island Resort & Spa Maldives (112 rooms). The renovation will be done in phases during the 2Q-3Q low season over 2015-16 to minimize the impact. After completion in 2016, it will be able to bump up room rates.  

Food margin expansion. While SSS in the food business is recovering slowly at +0.8% in April and +1.3% in May (vs. +0.6% in 1Q15), EBITDA margin is widening: it increased to 12.2% in 1Q15 from 8.6% in 1Q14 and 10% in 4Q14 and the widening is continuing in 2Q15. Most of this is provided by last year’s closure of loss-making outlets, the introduction of a high-margin menu and efforts to control costs of raw materials and staff. In 2015, it expects 2% SSS and 11-12% EBITDA margin (up from 9% in 2014).  

Maintain BUY with TP of Bt42/share. Though Thai tourism recovery began in October last year with the first positive YoY growth of international tourist arrivals and we expect CENTEL to report stellar core earnings growth at 61% YoY in 2015, its share price has underperformed the market by 9%, implying positives are not priced in. We maintain our BUY call on CENTEL with TP of Bt42/share.