Central Plaza Hotel

Central Plaza Hotel Plc (CENTEL) 

We see two pluses that will continue to hold up CENTEL’s share price:  1) rising earnings in 2H16 from strong hotel and food operations and  2) its status as a laggard play: 6-month price performance is +2% for CENTEL vs. +11% for MINT and +21% for ERW. We maintain our BUY on CENTEL with TP at Bt47/share.

 

Strong low season. We believe 3Q16 will be a strong low season for CENTEL’s hotel business (47% of total revenue). July’s revenue per available room (RevPar) grew 11% YoY, beating the +4% YoY in 2Q16, driven primarily by a higher occupancy rate. By destination, Maldives is key, with RevPar up 36% YoY as operations get back on track after last year’s renovation-caused low base at Centara Grand Island Resort & Spa Maldives. RevPar is also growing upcountry at +5% YoY and in Bangkok at +2% YoY. The company sees little impact from the bombs over August 11-12, with occupancy rate in August high at main hotels, e.g. ~89% at Centara Grand & Bangkok Convention Center at CentralWorld and ~94% at Centara Grand Mirage Beach Resort Pattaya.

 

Stronger SSS and wider EBITDA margin. For the food business (53% of revenue), we are positive toward same-store sales growth (SSS), which reached 4% in July, up from +2.7% in 2Q16 thanks to an improving economy and better operations at provincial food outlets (65% of food revenue). EBITDA margin improved to 14.6% in July, beating the 12% in 3Q15 and 14.2% in 2Q16, aided by a cost control program. The market has begun to express concerns about effect on KFC of rising broiler prices (+8% YoY in August), since KFC accounts for 57% of CENTEL’s food revenue. CENTEL says its broiler price is less volatile than market prices since it has contracts with suppliers extending through end-2016.

 

KFC’s new franchisee. Yum Restaurants International (Thailand), the franchiser of KFC in Thailand, has sold 130 KFC branches to Restaurant Development Company Limited (RDCL). According to Yum Restaurants, of the 585 KFC outlets expected to be operational by the end of the year, 238 will be operated by Yum Restaurants, 217 by Central Restaurant Group (CRG, CENTEL subsidiary) and 130 by RDCL. The greater number of franchisees has led the market to worry about the effect on CENTEL’s expansion of KFC outlets. However, our study suggests the impact will be diluted by the conditions in the franchise agreements, which include zoning and distance between outlets. CENTEL (through CRG) still has an exclusive right to open KFC branches in Central Plaza Shopping complexes, Robinson Department Stores and in other locations across the country with the approval of Yum Restaurants.

 

Earnings uptrend. Laggard play. BUY at TP of Bt47/share. We maintain our BUY call on CENTEL with TP at Bt47/share. A positive factor is the growth in earnings in 3Q-4Q16 (up both YoY and QoQ) backed by strong hotel and food operations. Moreover, CENTEL is a laggard play: 6-month price performance is +2% for CENTEL vs. +11% for MINT and +21% for ERW.