The Platinum Group

The Platinum Group Plc (PLAT) 

 

Investment thesis

Clearer earnings visibility after the new management team has taken charge has caused us to resume coverage on PLAT. In our view, its short-term growth profile may look unexciting due to the absence of new project openings until 2Q18, but its solid cash flow stream, healthy balance sheet (net cash at Bt2.1/share) and cheap valuation (PERs of 22.7x FY15 and 20.4x FY16) should make PLAT to be a good long-term investment. We recommend a BUY rating on the stock with a YE16 target price of Bt6.60.

Fresh leadership brings more light to forward picture 

The visibility of PLAT’s growth prospects has been much clearer after new management took charge. After discussions with the CEO and CFO, we feel that they understand customer requirements well and have deep knowledge in how to develop and operate shopping malls. Many problems have been solved accurately and quickly. We are now more comfortable for its plan to develop “The Market”, which captures end-consumers whose profiles and preferences are totally different to the company’s existing customers. An element that we view as crucial for this good start is that the team has been able to push this project forward after it had been delayed for months. The Market will have its groundbreaking this month and is scheduled to open in 2Q18.

Growth outlook for FY16-17 is still decent 

Despite that no new projects will be added until 2018, we expect PLAT to deliver a two-year EPS CAGR of 8.6%, FY16-17, thanks to improving rental rates at its Platinum Fashion Mall, higher room rates at Novotel Platinum and the turnaround of The Wharf Samui. PLAT was able to raise rental rates upon contract renewals in Nov by around 6-7%, even in this weak spending environment. Note that most contract renewals normally takes place in Nov. Regarding its hotel, PLAT’s room rate growth should slightly outperform the average of 3-5% in the area, thanks to high occupancy of more than 85-90%. The Wharf Samui should see a turnaround to profit from 4Q15 onwards, underpinned by a 50% cut in rental costs (the landlord agreed to cut) and a change in tenant mix (to better meet local demand preferences).

Earnings to double in five years

PLAT’s earnings should enter a high growth mode from FY18 onwards on the back of the openings of The Market in 2Q18, Holiday Inn Express Samui in 2Q18 and Holiday Inn Resort Samui in 4Q18. During FY18-20, we expect PLAT’s earnings to grow with a CAGR of 18%. Moreover, the firm plans to build a hotel and an office building on top of The Market. The construction will start in 2Q19 and will conclude in 2Q21. Note that we have yet to take into account the hotel and office tower at The Market.