Minor International

Minor International Plc (MINT)  

 

Net profit beat our expectation, but core profit was in line

MINT posted a record high quarterly core profit of Bt1.8bn for 4Q15, a jump of 11% YoY and 111% QoQ, consistent with our estimate and that of the street. Including net-extra gains of Bt1.6bn (a Bt1.7bn of mark-to-market gains of its investment in Coffee Club and a Bt49m reversal of gains on the Oaks Elan Darwin acquisition), net profit was record of Bt3.4bn, soaring 111% YoY and 271% QoQ, and beating all estimates. MINT announced DPS of Bt0.35 for FY15 operations, XD on 8 Apr and payment on 29 Apr. 

Results highlights

Impressive core earnings came thanks to MINT’s hotel, food and residential businesses. It posted quarterly record revenue of Bt12.6bn, up 23% YoY and 27% QoQ, outweighing a 1.5% YoY slimmer core margin. Core margin rose 5.7% QoQ driven by hotel business and residential sales. SSSG was 0.3% YoY and TSSG of 7.8% YoY. Hotel revenue expanded 26% YoY and 21% QoQ to Bt4.6bn, boosted by room-inventory growth. System-wide hotel RevPar dipped 2% YoY (1% occupancy rate slippage to 69% with room rate flattish). However, organic hotel RevPar rose 6% YoY. Residential sales bounded 82% YoY and 56% QoQ to Bt1.4bn (73% sales of The Residences by Anantara at Layan and 27% from timeshares). Net gearing was stable QoQ at.1.3x at YE15.

Outlook 

MINT should post strong YoY and QoQ in 1Q16 results, on profit accretion from acquisitions (Coffee Club and Tivoli). Food TSSG is expected in the double digits YoY with low-single-digit growth of SSS. System-wide hotel RevPar in Jan 2016 is turnaround from a 2% YoY slippage in 4Q15 to a 5% YoY growth (higher occupancy rate and room rate). But, net gearing ratio is expected to peak at 1.5x end-Mar 2016 because of the Tivoli acquisition, but no recap risk. In Jun-Sep low season, MINT should post the best low season earnings in the firm’s history for 2Q16-3Q16.

What’s changed?  

We maintain the impressive core earnings growth forecast of 17% for FY16, outperforming its peers and the SET’s BLS coverage. The acquisition of Tivoli on 1 Feb 2016 will definitely generate significant value accretion for MINT due to operating assets that have strong profit.

Recommendation 

Despite a 10% share price rally since the Tivoli acquisition, we suggest investors let profits run ahead of potential positive messages from CEO William Heinecke’s speech at the 26 Feb analyst meeting. MINT is our top pick due to its core earnings growth leadership in the sector for FY16 and its outperformance against the SET. Rerating valuations are deserved on FY16 PEG of 1.6x for MINT, much cheaper than 1.9x for CENTEL. Our BUY rating stands, with a DCF-derived YE16 target price of Bt40, a 5% discount to the DCF value (8.0% WACC, 2.0% terminal growth rate).