The Platinum Group

The Platinum Group Plc (PLAT)

 

Investment thesis

We hosted a non-deal road show to local individual investors during which CEO Chanchai Phansopha and CFO Somchai Warunpanturak were key speakers. In our view, its unexciting short-term growth profile should be priced in with its cheap valuation (PER of 19.4x FY16). Its long-term growth profile looks promising as new projects should empower PLAT to double its earnings within five years. PLAT’s balance sheet is very healthy, with a net cash level of Bt2.1/share. We maintain our BUY rating on the stock, with a YE16 target price of Bt6.60.

New projects on schedule

Management confirmed that all future projects are progressing as scheduled. The Market, its new shopping mall on Rajdamri road (next to BigC), is under construction and is expected to be opened in 3Q18. The Market will have an NLA of 41k sqm, which will almost triple its retail portfolio to 69k sqm in FY18. The average rental rate is conservatively targeted at Bt1,800/sqm/month, which is far below the current short-term rate of Bt4,700/sqm/month at its Platinum Fashion Mall and would be around 20% discount to that of Central World (the mall opposite) at the time of opening. Moreover, the firm plans to build a 30k sqm office tower and a 380-room hotel on top of The Market. Two hotels in Samui should break ground on schedule in 1Q17. Holiday Inn Express (200 rooms) is expected to open in 2Q18, while Holiday Inn Resort (150 rooms) will open in 4Q18.

Eyes on top-line growth of more than 10% during FY16-17

These future projects should make PLAT’s long-term growth story exciting. However, many investors are concerned about the firm’s growth profile in FY16-17 given that there are no new projects to be unveiled during the period. Management said that, despite the lack of new projects, the firm targets growing its top line by at least 10% a year during FY16-17 (versus our model of 6%) through higher rental rates at the Platinum mall, increased hotel occupancy and room rates, greater F&B revenue and the more efficient utilization of common areas.

Despite the consumption slowdown, PLAT has still been able to raise rental rates upon contract renewals by 6% thanks to higher demand for rent given that the Platinum mall is considered the best location for fashion wholesalers. Novotel Platinum Pratunam hotel should be another growth driver on the back of the low base set by the Bangkok bombings in Aug 2015. The firm expects the occupancy rate to rise to 90-95% (from 89% in FY15) while ADR should grow 6% to Bt3,100-3,200. Regarding F&B, PLAT aims to boost revenue from its food court by regularly replacing food vendors who have sales below target.