Central Plaza Hotel

Central Plaza Hotel Plc 

 

We expect CENTEL to report strong net profit of Bt220mn in 2Q15, up hugely from Bt42mn in 2Q14, but down 74% QoQ on seasonality. YoY earnings growth will be backed by improving food margin - despite a contraction in same-store sales growth (SSS) - and strong hotel operations. We maintain BUY on CENTEL with a TP of Bt42/share.  

Despite weak SSS, wider margin is positive. CENTEL’s food business (~55% of revenue in 2014) is feeling the impact of the slow Thai economy, with same-store sales growth (SSS) turning to a contraction of 1.0% in 2Q15, deepest in June, vs. +0.3% in 2Q14 and +0.6% in 1Q15. The larger pinch came from food outlets in the provinces (~40% of total outlets). Despite the weak SSS, earnings from the food business are expected to grow YoY boosted by wider EBITDA margin, which CENTEL says is continuing to be ~13.5% in 2Q15 vs. 10% in 2Q14 and 12% in 1Q15, after the closure of 20 loss-making outlets 1H15 and the benefit of lower raw material prices. The number of food outlets in 2Q15 ended at 774, up only 1% YoY, on a more conservative outlet expansion in the presence of a weak economy. Although SSS in 1H15 at -0.1% is weaker than our assumption of 2%, we believe this will be offset by a stronger EBITDA margin of ~13% in 1H15 vs. our assumption of 12%. 

Strong hotel operations continuing. CENTEL says its hotel business (~45% of revenue in 2014) is doing well with a high occupancy rate in 2Q15 of 77%, up from 69% in 2Q14 but down from 85% in 1Q15 on seasonality. We note that this beats the 75% occupancy rate in 2Q13, a period of strength for Thai tourism before the political meltdown. Fuelling hotel strength are its Bangkok hotels (~26% of hotel revenue), able to offset the slow operations at Centara Grand Island Resort & Spa Maldives (~10% of hotel revenue) brought by the renovation of 30% of its rooms during the May-August low season. From July 1-29, CENTEL reports a continued high occupancy rate of 85%.  

2Q15 preview: YoY jump. We expect CENTEL to report strong net profit of Bt220mn, jumping from Bt42mn in 2Q14 but down from Bt834mn in 1Q15 on seasonality. Our assumptions are: 1) total revenue of Bt4.4bn, up 4% YoY (but down 12% QoQ) from a strong hotel business and 2) EBITDA margin at 18.9%, up from Bt13.8% in 2Q14 (but down from 30.7% in 1Q15), thanks to improving profitability at both the food and hotel businesses. Meeting our 2Q15 net profit estimate means 1H15 will reach 60% of our full-year forecast, slightly above historical average of 57%. 

Maintain BUY with TP of Bt42/share. CENTEL’s share price has increased by 11% over the past three months vs. -6% for SET. Despite this, we believe CENTEL’s strong price performance will continue, with the upcoming strong 2Q15 results as a catalyst. We maintain our BUY call on CENTEL with TP of Bt42/share.