Central Plaza Hotel

Central Plaza Hotel Plc (CENTEL)

 

The tone was edging towards the positive at the Opportunity Day meeting, with management reporting strong same-store-sales growth (SSS) in April, wider EBITDA margin for the food business and improving hotels in Bangkok as events and meetings return. YTD, share price has slid 9% and underperformed direct peer MINT by 16% against better earnings momentum in 2Q-4Q16. BUY with a TP of Bt47/share.  

 

Strong SSS in April, wider EBITDA margin. CENTEL reports strong SSS growth in April at 4% YoY, jumping from -0.1% in 1Q16, driven by the government’s offer of an income tax deduction for dining expenditures during April 9-17. By location, food outlets in the provinces (65% of food revenue) grew more than outlets in Bangkok. SSS growth for 5M16 is at 0.7% YoY, as momentum slowed in May after the stimulus ended. Although recovery in food SSS is slow, there is a positive in the wider EBITDA margin, which was ~13% for 5M16, implying a higher EBITDA margin at ~15% in April– May from the 11.6% in 1Q16, aided by a cost control program aimed primarily at marketing and utilities expenses. 

 

Bangkok hotels: events returning. Revenue per available room (RevPar) grew 1.4% YoY in April and 3% YoY in May. By location, hotels in Bangkok (26% of hotel revenue) had the strongest RevPar growth at 7% YoY in April-May, driven by rising average room rate (ARR). CENTEL expects Bangkok hotels to continue to do well thanks to the return of MICE (meetings, incentives, conferences and exhibitions) bookings after the bomb in 3Q15. Hotels in the provinces (53% of hotel revenue) had flat RevPar growth in April-May. In the Maldives, renovations continue, with 26% of total rooms at Centara Grand Island Resort & Spa Maldives on the list to be renovated in 2Q-3Q16. However, the impact should be smaller as this is fewer than the comparative figure last year.  

 

Hotel expansion on track. CENTEL plans to open two COSI, its own brand of economy hotel, at Samui and Pattaya in 2018, and it is studying adding another four COSI hotels in Bangkok and tourist destinations. For the longer-term, CENTEL plans to have 30 COSI hotels: six owned and 24 under management contracts. CENTEL is developing two 4-star hotels in Maldives that it expects to open for guests in 2019. 

 

Studying the impact from the new property tax. The cabinet approved the draft Land and Building Tax Act that will replace the Property and Land Tax Act B.E. 2475 and Local Maintenance Tax Act B.E. 2508, planned for implementation next year. CENTEL is studying the impact of this new law as tax rates will be progressive based on appraised value of land and building rather than constant tax rate based on income.  

 

Maintain BUY. After the weak 1Q16, we expect earnings to grow YoY in 2Q-4Q16 backed by: 1) strong Thai tourism with better low season, 2) improving operations at the Maldives and low base effect since renovations at the Maldives started in May 2015 and 3) improved food operations. YTD, CENTEL’s share price has declined 9% and underperformed MINT, its direct peer, by 16% against better earnings momentum. We maintain BUY on CENTEL with TP of Bt47/share.