Central Plaza Hotel

FY13 RevPar growth leader

Central Plaza Hotel Plc (CENTEL)

Investment thesis

We prefer CENTEL (BUY rating) and have a YE13 target price of Bt44, a 10% discount to DCF value. The firm will deliver record FY13 RevPar (leading the sector in RevPar growth) and core earnings (up 36% YoY), we believe. The lowest net gearing since YE08 will enable new acquisitions, which would mean scope for earnings upside. In the meantime, we expect a record 1Q13 core profit, which should boost the share price in the short-term. CENTEL's FY13 PEG of 0.9x represents a 25% discount to MINT's PEG.

The best RevPar growth profile in the sector

CENTEL will report the best hotel performance improvement in the sector. FY13 RevPar is expected to jump 18-19% YoY, led by a high average occupancy rate of 70-71% and 15-16% growth in the mean room rate. The key drivers are the two hotels in the Maldives, as their room rates are much higher—Bt14,000 for Maldives I and Bt9,500 for Maldives II—than CENTEL's FY12 mean room rate of Bt3,744. Hotel management income, a fat margin business, will increase 16% YoY to Bt190m in FY13 (management targets Bt400m in FY17).

Defensive Food business with new brands

The QSR business (56% of CENTEL's FY12 revenue and 50% of net profit) secures long-term earnings growth, given annual 3-5percent SSSG and outlet expansion (from 677 outlets at YE12 to 857 by YE15). We forecast FY13 Food TSSG of 17% and 80 new outlets this year (up 12% YoY). The revenue drivers are KFC, Mister Donut, Auntie Anne's, Ootoya and Yoshinoya. There will be inorganic growth, as CENTEL intends to acquire at least one new brand per year (we expect two new brands in FY13).

1Q13 record core profit expected

The Hotel operation in January 2013 reported a high occupancy rate of 80% (up 4% YoY) and 12% YoY growth in the mean room rate (led by the consolidation of the hotels in the Maldives). The numbers for February should remain strong, given Chinese New Year. With a bigger stake in Centara Karon (from 50% at end-March 2012 to 99% on Feb 21, 2013), CENTEL is expected to report a record high core profit for 1Q13.

Triggers for earnings forecast upgrades

There is potential for earnings upside to our model. We have yet to factor the new budget hotel brand, Cosi, into our projection (Cosi Ratchada, the first hotel under the brand isn't due to open until FY15. CENTEL targets having five Cosi hotels by YE15 (one proprietary property and four management contracts). In addition, the firm is negotiating to buy the remaining 50percent stake in Centara Kata hotel, Phuket that it doesn't yet own. Further acquisitions/investments would mean scope for upside to earnings. CENTEL is considering selling hotels to a property fund/REIT.