Central Plaza Hotel

Central Plaza Hotel Plc (CENTEL)  

 

We expect CENTEL to report 1Q16 core profit of Bt780mn, slipping 7% YoY but more than doubling from Bt302mn in 4Q15. This lines up with our estimate last month and reflects slow hotel operations in Maldives because of renovations and higher expenses at its food business. We believe the weak 1Q16 is somewhat priced in as CENTEL’s share price has underperformed MINT, its direct peer, by 14% over the past three months and YoY earnings growth will show up in 2Q-4Q16. We maintain BUY on CENTEL with TP at Bt47/share.  

1Q16 preview. We talked with management and information provided leads us to estimate CENTEL’s 1Q16 core profit at Bt780mn, down 7% YoY but surging from Bt302mn in 4Q15. The YoY drop is as expected, arising out of weaker hotel operations in Maldives because of delays in the renovation and lower EBITDA margin from higher SG&A expense. Our 1Q16 assumptions:  

1) Hotel business: Revenue per available room (RevPar) growth of 4% YoY and 27% QoQ on: 1) occupancy rate at 87% (up from 85.3% in 1Q15 and 80% 4Q15) and average room rate (ARR) growth of 2% YoY and 17% QoQ. This gives hotel revenue of Bt2.7bn, up 4% YoY and 18% QoQ. The small YoY growth comes from slower operations at Maldives (19% of hotel revenues) from delays in renovation of Centara Grand Island Resort & Spa Maldives, where 83 rooms or 74% of total rooms were finished in December 2015, not the planned October 2015 that caused a hiccup in January and February. Occupancy rate for the Maldives unit in 1Q16 was thus 85% (down from 90% in 1Q15), with March already showing improvement. 

2) Food business: We expect revenue of Bt2.5bn, up 3% YoY but down 4% QoQ. Same-store sales growth (SSS) in 1Q16 is -0.1%, down from 0.2% in 4Q15. Worse performing are KFC and Ootoya. It has 800 outlets as of March 2016, up 3% YoY. 

3) We expect EBITDA margin at 28.8%, down from 30.7% in 1Q15 and flat from 4Q15. YoY fall is due to: 1) poorer operations at Maldives, a high-margin unit, and 2) rising SG&A expense for the food business, with higher marketing expenses from promotions and restoring the positioning of Ootoya after a misunderstanding in the social media about a parasite found in food in late 2015. 

Better earnings ahead. Looking past the YoY drop in 1Q16, we expect growth to show up in 2Q-4Q16 on several factors. 1) Strong Thai tourism with better low season. 2) 

Better operations in Maldives plus low base effect since renovations there began in May 2015. There are still 26% of total rooms to be renovated in 2Q-3Q16; however we do not 

expect significant impact since this is fewer than last year. 3) Better food business operations: CENTEL says that SSS growth turned positive in April.  

Maintain BUY with TP at Bt47/share. We believe the weak 1Q16 is largely priced in as CENTEL’s share price has underperformed MINT, its direct peer, by 14% over the past three months and YoY earnings growth will show up in 2Q-4Q16. We maintain BUY on CENTEL with TP at Bt47/share.