Central Plaza Hotel

Central Plaza Hotel Plc (CENTEL) 

 

Investment thesis

We suggest that investors await a good entry level, when this stock moves below Bt40/share, or near its long-term PER mean of 25x. The jaded earnings growth profile in 1Q16-3Q16 has yet to be priced in, as valuations are not cheap at FY16 PER of 28.9x, 0.6SD above its FY06-15 mean. Our HOLD stands at a YE16 DCF-derived target price of Bt46, a 15% discount to DC value, 8.6% WACC and 2.0% terminal growth rate. 

Sluggish operating statistics in 1Q16 high season 

With the very high base set by Jan-Feb 2015 hotel performance, RevPar in Jan-Feb 2016 is guided to increase 1.7% YoY—a 1.5% growth for occupancy rate to 86.6% but room rate flattish—a 8% growth for hotels in Bangkok, a 3% growth for its Maldives property but a 1.0% slippage for upcountry Thailand rooms. In 2M16, Food SSSG is 1.4% YoY and TSSG of 4.4%. Thus, despite 1Q16 high season, CENTEL will report a low-single-digit growth of Hotel RevPar and Food SSS in 1Q16. 

Unattractive quarterly earnings growth forecast until 4Q16 

In 1Q16 (the best season for Thai tourism), we anticipate that CENTEL’s earnings growth is set to underperform its peers with a flattish YoY core profit number against double-digit-growth for ERW and MINT. In 2Q16-3Q16, Centara Grand Maldives will renovate the rest of its 30 rooms (80 rooms were done in May-Nov 2015), resulting in only a moderate YoY growth forecast for 2Q16-3Q16 amid low season profits. CENTEL should again deliver strong quarterly earnings in 4Q16 due to full operation of renovated rooms at its Maldives property and high seasonality. 

Organic growth in FY16—no new proprietary hotels 

The FY16 business plan is unexciting, with no new proprietary hotels. The RevPar growth target is 6%, boosted by 6% room rate growth against a flattish occupancy rate of 81%. Food SSSG target is 1.0% and 5.0% for TSSG. EBITDA margin is aimed to be sustained YoY, which is too conservative in our view. We anticipate operating leverage benefit to lead to a 0.5% core margin expansion and a 14% core profit growth for FY16. CENTEL will have inorganic growth from adding 10% more new owned rooms in FY19—two four-star hotels in Maldives, Cosi brand budget hotels in Samui and Pattaya and one four-star hotel in Dubai (40% stake in JV). It is too early to price in the new owned hotels in the portfolio.  

New acquisition is unlikely in 1H16—too early to trade on new M&A 

Its balance sheet is healthy at a net gearing ratio of 0.9x at YE15, the lowest since 2006 and far from the internal policy of 1.2x in maximum and debt covenant of 2.0x.  In order to achieve at least 90 hotels by FY20 (42 hotels in FY15), CENTEL really needs to gather new acquisitions. It will focus on buying the operating assets for hotel and food businesses. We calculate that the earliest new acquisitions will be carried out in late 3Q16.