Brokers see good year for MINor

Contributions from its three five-star hotels, another two hotels under management and two new food chains - Thai Express and the Coffee Club - will be major driving forces for Minor International's 2008 earnings.

 Twelve brokers in the Securities Analysts Association's (SSA) consensus recommended "buy" on the stock with a target price range of Bt18.20 to Bt23.50 per share.

Minor has two core businesses: hospitality and leisure, and food.

In the first quarter of 2008, its

hospitality and leisure business contributed Bt1.37 billion or 74

per cent of the company's earn-

ings before interest, tax, depre-

ciation and amortisation; followed by the food business at 21 per cent, and property development at 5 per cent.

The company has 15 hotel properties with 2,300 rooms in Thailand, the Maldives, Sri Lanka, Bali and Vietnam under the Four Seasons, JW Marriott and Anantara brands. It plans expansion for its hotel management business overseas.

For the food business, Minor operates the Pizza Company, Swensen's, Dairy Queen, Sizzler, Burger King, and has a 50 per cent stake in The Coffee Club and a 70 per cent stake in Thai Express Concepts which has 46 food outlets in seven countries under the Thai Express, Hong Kong Cafe, New York New York and Shokudo brands. At the end of March 2008, The Coffee Club had 902 outlets and plans to increase this number to 1,243 by the end of 2010, mainly through overseas expansion.

Tisco Securities -not among the brokers in the SAA's consensus - has reiterated a "buy" recommendation on Minor's stock with a 12-month target price of Bt21.50.

The broker has maintained its 2008 net profit forecast for Minor at Bt2.05 billion, a rise of 27 per cent year-on-year on the anticipation that its new investments should boost income.

Minor's management believes the rise in airfares would have slight impact only on its occupancy rates, given the company aims to attract high-end tourists.

About 4 to 50 per cent of its customers are from Europe, 14 to15 per cent from North America, 20 per cent from other Asian countries, with only 8 to10 per cent from Thailand.

"Although ongoing political protests in Thailand may deter some tourists, major hotels in Bangkok should get a boost from the current Lions International meeting in the capital until June 27,"the broker said.

The meeting is expected to attract 25,000 members from 150 countries and raise occupancy

levels at hotels in Bangkok's cen-

tral business district, including the Four Seasons BKK and Marriott BKK.

Minor's hotel revenue should see stronger growth in the second half of this year due to the opening of the new Anantara Phuket resort in September and new hotel management contracts in Abu Dhabi and Dubai to be functional in the second half.

Full contributions from Naladhu in Maldives and Four Seasons Samui, which commenced operation late last year, will boost the company's 2008 earnings, the broker said.

"We expect Thai Express to contribute about Bt15 million in earnings each month, and The Coffee Club about Bt12 million a month. Both restaurant chains should be key earnings drivers for Minor, particularly in the second half of this year," Tisco Securities said.

For its property development business, the broker estimated Estate Samui Villa would generate earnings of Bt500 to Bt550 million this year.

Among risk factors are unexpected events that could have a negative impact on tourism and the hotel industry - such as terrorist attacks, political unrest and natural disasters; and a sharper downturn than is currently anticipated for the global economy, which could affect discretionary expenditure. People could defer or cancel their holiday plans and cut back on eating out, thus affecting the restaurant business and causing delays in opening Minor's new hotels and fast-food outlets.

CIMB-GK Securities (Thailand), excluded from the SAA's consensus, has maintained its "outperform" rating on Minor's stock with a target price of Bt19.25.

Minor's hotel business should weather the inflation impact better than its food business as it targets high-end customers, the broker said.

Hotels contribute the biggest portion to Minor''s earnings before interest, tax and depreciation and could help cushion an expected slowdown in the food business, the broker said.

However, with higher inflation, consumers will be more cautious in their spending, which would hurt Minor's food business; and it would be increasingly difficult for the company to pass on rising costs, the broker said.

"We have trimmed our gross margin assumptions by about 200-basis points to 62.8 per cent for this year and next. Margins were 64.8 per cent in 2007," it said.

Given a less favourable operating environment for Minor, the broker has lowered its earnings forecasts by 6 per cent for this year and 9 per cent for next year to around Bt2 billion and Bt2.58 billion, respectively.

Asia Plus Securities, which is among the brokers in the consensus, has recommended "buy" on the stock with a fair value of Bt19.37.

Minor's second-half earnings would continue to grow, driven by the opening of Anatara Phuket and two hotel management contracts in Dubai and Abu Dhabi, it said.

The broker estimated that Minor's normalised profit this year will jump at an annual rate of 19.3 per cent to Bt1.93 billion.