Central Plaza Hotel

Central Plaza Hotel Plc (CENTEL) 

 

Investment thesis

We accompanied CENTEL on a non-deal roadshow to Hong Kong last week at which investors were impressed with its all-time high hotel performance and proven success of its food-business margin expansion strategy. Key questions raised were about inorganic growth. New hotels in Maldives, Cosi and M&A deals are catalysts to our long-term earnings upgrades. It trades at a FY16 PER of 28.9x. High seasonality in 4Q15-1Q16 could drive a valuation rerating to at least 32.2x or 1SD above its FY06-14 mean, implying a rise to Bt50/share. Despite the price rally (up 21% QTD), it is too early to take profit and we suggest letting profits run. 

Record high hotel performance, with fatter food margin

Following record quarterly hotel profit in 1Q15-3Q15, the management guided for a 5% RevPar growth YoY in Oct 2015 (1% YoY growth for occupancy rate to 79% and 4% room rate growth)—11% YoY growth for Maldives, 8% for Bangkok and 1% for upcountry Thailand. Thus, CENTEL will achieve its FY15 hotel RevPar growth target of 7%, spurred by 6% occupancy rate growth, to 81%. SSS improved from a 3.1% YoY slippage in 3Q15 to growth of 2.0% YoY in Oct: TSSG of 4.0% in Oct against a 1.0% YoY drop in 3Q15. CENTEL will post slightly negative SSS in FY15 and TSSG of 2-3%, but food EBITDA margin will expand 4.0% to 13.0% in FY15 due to enhanced efficiency and lower loss outlets.

Organic growth to boost FY16 numbers, plus M&A opportunity 

The management unveiled its FY16 business plan: an 8% hotel RevPar growth target boosted by a 7% room rate mean hike and a 1% occupancy rate growth to 82%. New renovated rooms in Centara Grand Maldives will drive the room hike in FY16 by 8-21% depending on room type. Besides, hotels in Bangkok and MICE business have room to grow in FY16. The FY16 food SSSG target is 3% and 5% for TSSG. EBITDA margin is aimed to improve 0.5-1.0% for hotels and YoY flattish for food. CENTEL is seeking joint ventures and acquisitions in hotel and food businesses.

Kicking off proprietary hotels in 2018

By YE20, CENTEL intends to have at least 90 hotels (42 hotels in FY15) through managed contracts (8-10 new contracts per year) and proprietary hotels. In 2018, CENTEL plans to complete two owned four-star hotels in Maldives (300 rooms with US$120m of investment) and two Cosi (its new economy hotel brand) in Samui and Pattaya (451 rooms with Bt650m).

Healthiest balance sheet since 2007

The interest bearing debt ratio is 0.8x at end-Sep, the lowest level since 2007 and far from the internal policy of 1.2x in maximum and debt covenant of 2.0x. There is a 20% bearing debt exposure to USD from Maldives hotels, but it is a natural hedge to USD revenue in the islands. Including hotel expansion in Maldives and Cosi, there is no recap risk.