Central Plaza Hotel

Central Plaza Hotel Plc  

 

Operations in the Maldives – the chief drag in 4Q15 – have been improving, with better occupancy rate in February than in January - yet CENTEL’s shares are laggard compared to direct peer MINT: since mid-January, CENTEL’s share price has underperformed MINT by 13%. We BUY CENTEL with a new end-2016 TP at Bt47/share (rolled over from mid-2016 TP at Bt44/share).  

 

Opportunity Day update: Maldives better in February. Renovations at the Centara Grand Island Resort & Spa Maldives hotel took longer than expected and were a major drag on CENTEL’s 4Q15 earnings (the Maldives unit contributed 19% of hotel revenue and 9% of total revenue in 2015). Renovations finally wound up in December (not the planned October) and this delay caused some hiccup in 1Q16, pulling January-February occupancy rate of the Maldives unit to 82%, below 84% in 4Q15 and 89% in the same period last year. Things look better on a monthly basis – occupancy was 78% in January and 86% in February. There are still 30 rooms to be renovated (~30% of total rooms) in 2Q-3Q16 but this is fewer than last year so impact should also be lower.  

 

Hotels in Bangkok are key. We see hotels in Bangkok (30% of hotel revenue and 14% of total revenue in 2015) as key to CENTEL’s growth. In January-February, revenue per available room (RevPar) grew 2% YoY, with an 87% occupancy rate (+2% YoY) and flat average room rate (ARR). By location, hotels in Bangkok showed strong RevPar growth at 8% YoY, flat YoY for hotels in provinces and 3% YoY for hotels in the Maldives. CENTEL targets 2016 RevPar growth of 6% YoY, backed by stable occupancy rate at 81% and a 6% YoY increase in average room rate.  

 

Food is neutral. CENTEL says same-store sales growth (SSS) in the first two months of 2016 was flat, relatively unchanged from +0.2% in 4Q15. In 2016, CENTEL targets SSS of 1% (up from -1% in 2015) and 35 new outlets (+4% YoY from 792 outlets in 2015).  

 

Earnings fine-tuned. We revise down CENTEL’s core earnings by 4% in 2016 and 3% in 2017 to factor in: 1) slower operations in the Maldives and 2) a cut in SSS to 2% in 2016 (from 3%). Our assumptions are above the company’s targets: we expect RevPar growth of 8% YoY (vs. its 6%) and SSS at 2% (vs. its 1%) based on our expectation of strong Thai tourism and an improving economy. We estimate 1Q16 core earnings at Bt780mn, down 7% YoY but jumping from Bt302mn in 4Q15. Despite the YoY drop, a lower contraction implies earnings are back to an uptrend. In 2016, we estimate core earnings growth at 13% YoY to Bt1.9bn; YoY earnings growth will show up in 2Q-4Q16 backed by improving operations, particularly at hotels in Maldives and Bangkok. 

 

Laggard price performance. Since mid-January, CENTEL has underperformed its direct peer MINT by 13% because of its poor 4Q15 when CENTEL’s 

core earnings fell 19% YoY vs. +8% YoY for MINT. To blame is its operations in the Maldives – but this was caused by facility upgrading and operations 

are already improving. BUY with a new end-2016 TP of Bt47/share: our earnings revision is offset by rolling valuation over from the Bt44/share mid-2016 

TP.