Minor International

Minor International Plc (MINT) 

 

Investment thesis

MINT is our top pick on its core earnings growth leadership in the sector for FY16 and its outperformance of the SET. Rerating valuations are deserved on FY16 PEG of 1.2x, much cheaper than 1.9x for CENTEL. Our BUY rating stands, with a new DCF-derived YE16 target price of Bt40, up from Bt38 to reflect an earnings upgrade on an unchanged 5% discount to the DCF value (8.5% WACC, 2.0% terminal growth rate).  

FY16 earnings upgrades led to growth leadership 

We have revised up our core profit forecast 6% to a record high of Bt5.7bn for FY16 and 4% to Bt6.5bn for FY17 to factor in the consolidation of Tivoli group hotels operation post-full acquisition success on 1 Feb 2016 and to incorporate the 20% higher investment stake in Coffee Club to 70% (started consolidation on 30 Oct 2015). With the new model, MINT will deliver strong core earnings growth of 23% for FY16, outperforming its peers (14% core profit growth forecast for CENTEL and ERW) and the SET’s BLS coverage (YoY flattish). 

Clearly positive view on Tivoli acquisition  

The acquisition of Tivoli Hotels & Resorts surely generates significant value accretion for MINT. Firstly, the acquisition price was inexpensive at FY15 EV/EBITDA of 9.6x and PER of 23x (far below MINT’s FY15 EV/EBITDA of 19.4x and PER of 31x). Secondly, it is an operating asset (12 hotels in Portugal and two in Brazil) generating €121m (Bt4,834m) of revenue in FY15 and €31m in EBITDA—10% of MINT’s hotel revenue accretion and 8% of EBITDA. Thirdly, Tivoli will add about 3,000 rooms or a 20% inventory growth to MINT. Finally, it is the first big step of entry to Europe and Latin America (new regions for MINT), as Tivoli is a prominent Portugal-based hotel brand with a strong operating platform. It will drive MINT’s further expansion in the Western hemisphere. 

Impressive short-term quarterly results 

Despite the lack of low-base benefits for Thai tourism in 4Q15 and onward, MINT is expected to deliver record quarterly core profit in 4Q15 and 1Q16, boosted by inorganic growth from acquisitions (Coffee Club and Tivoli) and residential sales of Anantara Residences Layan, Phuket. The reborn Thai Express project in Singapore (relaunch outlets post-refurbishment—starting in 4Q15), would improve food performance in FY16. During the 2Q16 low season (a nadir quarter of the year), we are looking for the best low season earnings in the firm’s history for 2Q16. 

Leveraging up but no recap risk

With the completion of the Tivoli acquisition, net gearing ratio is expected to peak at 1.5x end-Mar 2016 (from 1.3x at end-Sep 2015). However, there is no capital increase risk, as the leverage ratio is far below 1.75x of the debt covenant. The leverage ratio will gradually improve when strong earnings growth delivery occurs throughout 2016.