Tourism (Hotel)

Tourism (Hotel)  

 

As our only pure hotel play, ERW stands to benefit most from Thailand’s tourism high season and we expect it to beat all records in 1Q16 with core profit of Bt180mn (+30% YoY and 73% QoQ). Positives will continue as it begins to enjoy its new earnings driver: profit in the low season, breaking the traditional pattern of losses as seasonality fades. Of hoteliers, ERW is our top buy with TP at Bt6.5/share.  

 

1Q16 saw record high international tourist arrivals. In 1Q16, Thailand welcomed more tourists than ever before, with international arrivals at 9.0mn, up 15% YoY and 16% QoQ. China was the main support: tourists from that country achieved an all-time high of 2.6mn in 1Q16, up 31% YoY and 45% QoQ, and, at 29% of total international tourist arrivals, the biggest single contributor. Another positive is the onset of recovery of tourists from Russia (4% of Thailand’s total international tourist arrivals), up 10% YoY in 1Q16 after sliding down the slope since 2Q14, though that country’s economy has yet to climb back up to pre-crisis level. 

 

ERW best earnings play in 1Q16. Strong Thai tourism means strong operations for hoteliers and on this note, ERW will do best as it is our only pure hotel play and all operations are in Thailand. Thus, we propose ERW as the best hotel earnings play in 1Q16 with record high core earnings.  

 

 ERW: We expect core earnings of Bt180mn, up 30% YoY and 73% QoQ, and more than our earlier estimate of Bt170mn as operations are better than earlier thought. Excluding budget hotels (HOP INN), revenue per available room (RevPar) grew 5% YoY and 19% QoQ in 1Q16 mainly driven by luxury Bangkok hotels (+5% YoY and 16% QoQ), luxury resorts in Phuket and Samui (+9% YoY and +39% QoQ) and the midscale segment (+6% YoY and +12% QoQ). ERW will book a Bt3mn extra gain on the sale of shophouse at HOP INN hotel. All in, we estimate net profit at Bt183mn, up 31% YoY and 78% QoQ. 

 

 CENTEL: We estimate 1Q16 core profit at Bt780mn, down 7% YoY but more than doubling from Bt302mn in 4Q15. The YoY drop is as expected, arising out of weaker hotel operations in Maldives (9% of total revenue) because of delays in renovation, weak same-store sales growth (SSS) for its food business with a lower EBITDA margin from higher SG&A expense. QoQ earnings improvement is due to better hotel operations on seasonality and because it booked higher staff costs and provision expenses in 4Q15 to cover the planned closure of food outlets in 2016. 

 

 MINT: We estimate core earnings of Bt1.7bn, up 10% YoY but down 6% QoQ. The 

 

YoY increase is due to higher revenue (+19% YoY), mainly from its food business (SSS was +0.9% overall and +3% for Thailand) plus consolidated revenue from Minor DKL in Australia after MINT raised its holding to 70% from 50% in 4Q15 and the sale 

 

of two luxury villas at 

 

The Residences by Anantara, Layan, Phuket

 

. The fall QoQ is 

 

from lower residential property revenue as it sold three villas in Phuket in 4Q15.  

 

ERW is top pick – Looking at profit in low season. Of hoteliers, ERW is our top pick. 

b=mAfter beating all records in 1Q16, we expect the positive momentum to continue, upheld by a new earnings driver – profit in the low season (2Q-3Q16), with fading seasonality breaking the traditional pattern of losses. This means accelerating YoY earnings growth for the rest of the year, building to strong core earnings growth of 70% YoY to Bt337mn in 2016. We rate BUY on ERW with end-2016 TP at Bt6.5/share.