Minor International

Minor International Plc (MINT) 

 

Investment thesis

It is an opportune time to BUY MINT after its share price dipped 7% from its peak of the year at Bt37.50 on 23 Feb 2016. Its current price was a 3% contraction YTD, which is irrationally cheap when considering its core earnings growth leadership in the sector for FY16 and outperformance of the SET. We revise up a YE16 derived-DCF target price to Bt42/share (from Bt40) to factor in earnings upgrades, a 15% discount to DCF value, at 8.0% WACC and 2% terminal growth. MINT is our top sector pick particularly in 1H16, trading at the lowest FY16 PER of 26.2x against 28.2x for CENTEL and 49.1x for ERW. Rerating valuations are expected in anticipation of record core profit in 1Q16 and the outdoing of its peers in the 2Q16-3Q16 low season. Our BUY rating stands.   

Earnings upgrades to superior core profit growth in FY16

We have revised up our core profit forecast 6% for FY16 and 4% for FY17 due to core margin upgrades. It implies a 25% superior core profit growth in FY16. We have enlarged our core margin assumptions from their overly conservative 10.4% (down 0.6% YoY) in 2016 to 11.1% (YoY flattish) and from 11.3% in 2017 to 11.8%. We have high conviction about core margin sustainability from 2016 onwards as it is the first priority of the five-year plan proffered by MINT chief executive William Heinecke.

Strong operations in 2M16 led to record 1Q16 core profit 

In Jan-Feb 2016, food SSSG in Thailand is guided for a strong 4.0% YoY, 2.0% system-wide. China’s SSS is to turnaround from negative in 4Q15 to a 3% growth YoY. Australia’s SSSG is 1.0% YoY.  System-wide hotel RevPar is guided to drop slightly YoY in 2M16 by product mix. Organic hotel RevPar is guided to rise 5% YoY. Thai propriety hotel RevPar is to surge 6% YoY, YoY flattish in the Maldives and YoY growth of 10% for Oaks hotels, Australia (AUD terms). 

Geographical diversification strategy 

MINT’s business is now well diversified among the Maldives, Australia, and China, and across the Middle East, Africa and Europe. The proportion of the top line from ex-Thailand operations has jumped from only 13% in FY08 to 44% in FY15 and is targeted to hit 50% in FY20. In 2016, MINT will add exposure in Europe (from Tivoli), as hotel revenue contribution is well diversified at about 35% from Thailand, 23%, Australia; 15%, Tivoli (Brazil and Portugal); 9%, Maldives; and 17%, residential sales. For food business, revenue contribution is diversified to 54% from Thailand; 20%. Australia; 13%, Singapore; and 12%, China. 

Leveraging up in 1Q16 and deleveraging at YE16—no recap risk

The net gearing ratio at YE15 is 1.3x at YE15, which is in line with the maximum level set by MINT’s internal policy and far below 1.75x of its debt covenant. Management guided that the net gearing ratio would decline to 1.1x at YE16 when strong earnings growth delivery.