Central Plaza Hotel

Impressive Q4 2012 profit, as expected; set for record Q1 2013 core earnings

Central Plaza Hotel Plc (CENTEL)

In line with our expectation

CENTEL posted a record net profit of Bt743m for 4Q12, up by 891% YoY and 720% QoQ. The net result beat all estimates on an unexpected Bt458m gain from an acquisition (it upped its stake in the Centara Karon Hotel from 50% at YE11 to 84% at YE12 and the higher price paid for the new shares was marked-to-market for the entire holding). Core profit was Bt314m, up by 126% YoY and 190% QoQ, in line with our estimate and the consensus. Note that CENTEL set a Bt40m provision for CTARAF in 4Q12.

The firm announced a DPS of Bt0.30, a 40% payout of core profit, a 0.8% yield. XD on May 2; payment on May 23.

Results highlights

CENTEL's new auditor re-classified the financial statements. Thus, YoY and QoQ income statement comparisons aren't valid. Regardless, the impressive 4Q12 core profit was led by high season for tourism and a strong Food business. Hotel RevPar rose 22% YoY (occupancy was 75% versus 64% in 4Q11; the room rate inched up 4% YoY). Food TSSG was 20% YoY and SSSG was 3.8%. The net gearing ratio dropped from 1.7x at end-Sept to 1.2x at YE12 (the best balance sheet since YE08).

Outlook

CENTEL will report a record high core profit for 1Q13, driven by the Hotel business (the best tourism season of the year). There is also inorganic growth with the consolidation of the Maldives I hotel and a bigger stake in Centara Karon (50percent stake at end-March 2012 versus 99percent stake on Feb 21, 2013). Hotel RevPar in Jan jumped 18% YoY (a high occupancy rate of 80% and a 12% increase to the room rate).

What's changed?

We have revised up our FY14 profit forecast by 3% to factor in expanded expectations for hotel management fee income—we now assume it will jump from Bt164m in FY12 to Bt190m in FY13 and Bt280m in FY14 (we previously assumed Bt258m for FY14). New management contracts are expected to be announced soon. We see scope for earnings upside from: 1) negotiating with a business partner to buy its stake in Centara Kata beach, Phuket (CENTEL already has 50%), 2) new contracts for a new brand Cosi (budget hotel) and 3) two new food brands.

Recommendation

We maintain our BUY call on CENTEL. The firm should post the best RevPar growth in the sector for FY13 of 19%. We expect a further re-rating, prompted by a strong core earnings growth profile (36percent for FY13 and 27percent for FY14). Our YE13 target price rises to Bt44 (from Bt34), which reflects our earnings forecast upgrades (a 10% discount to DCF value). CENTEL trades FY13 PEG of 0.9x, far below MINT's 1.2x.