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Central Plaza Hotel

2013-14F cut, but still Buy, looking to 2015 BUY

Central Plaza Hotel Plc (CENTEL)

2013-15F cut but maintain BUY on better future. We maintain our BUY on CENTEL despite the cuts in forecasts as we believe the negatives are priced in and that 2015 will see it resuming its strong earnings uptrend upon the recovery in Thai tourism. While the prolonged political uncertainty will erode earnings, especially from hotels, in 4Q13-1H14, the 25% drop in share price from its peak in October 2013 implies the negatives are priced in.

Hurt by politics. CENTEL's RevPar growth in January was 12% YoY. Excluding the two hotels in Maldives to assess the effect of the political tension reveals a 3% YoY decline in RevPar for hotels in Thailand (vs. 6% YoY growth in 4Q13). This reflects a lower occupancy rate of 73% (from 80% in January 2013 and in 4Q13) almost wholly at its two flagship hotels in Bangkok (Centara Grand at CentralWorld and Centara Grand at Central Plaza Ladprao Bangkok) while hotels did well in tourist destinations Hua Hin, Krabi and Phuket. For its food business, same-store-sales growth (SSS) was at -3% in 4Q13 and the contraction continued in January.

Company lowers targets. Though expecting improvement in both Thai politics and tourism in 2H14, CENTEL has still revised down its 2014 hotel business target to 3-4% RevPar growth (from 6-10%), with occupancy rate at 76% (down from 80%) and ARR increase of 6-7%. For its food business, its target is SSS at 1-2% and total system sales (TSS) at 9-10% with 75 additional outlets.

2013-2015F reduced. To factor in the political impact and weak economy, we revised down CENTEL's earnings by 13% in 2013, 19% in 2014 and 3% in 2015. Our assumptions are: 1) 5% growth in international tourist arrivals in 2014, most of which will be in 2H14, 2) a 3% lower RevPar in 2014 (from lower occupancy rate) but maintain RevPar in 2015 and 3) lower SSS to 2% in 2014( from 5%). Our 2013 forecast of Bt1.4bn net profit suggests 4Q13 net profit of Bt352mn, up 82% QoQ. We note that YoY comparison is not meaningful because of the 2012 financial restatement. We expect 14% net profit growth in 2014 followed by a strong 44% in 2015 as Thai tourism recovers.

New TP Bt38. The earnings revision reduces 2014 TP to Bt38 from Bt44, offering 18% upside gain. We maintain BUY on CENTEL.

2013-15F cut but maintain BUY on better future. We maintain our BUY on CENTEL despite the cuts in forecasts as we believe the negatives are priced in and that 2015 will see it resuming its strong earnings uptrend upon the recovery in Thai tourism. While the prolonged political uncertainty will erode earnings, especially from hotels, in 4Q13-1H14, the 25% drop in share price from its peak in October 2013 implies the negatives are priced in.

Hurt by politics. CENTEL's RevPar growth in January was 12% YoY. Excluding the two hotels in Maldives to assess the effect of the political tension reveals a 3% YoY decline in RevPar for hotels in Thailand (vs. 6% YoY growth in 4Q13). This reflects a lower occupancy rate of 73% (from 80% in January 2013 and in 4Q13) almost wholly at its two flagship hotels in Bangkok (Centara Grand at CentralWorld and Centara Grand at Central Plaza Ladprao Bangkok) while hotels did well in tourist destinations Hua Hin, Krabi and Phuket. For its food business, same-store-sales growth (SSS) was at -3% in 4Q13 and the contraction continued in January.

Company lowers targets. Though expecting improvement in both Thai politics and tourism in 2H14, CENTEL has still revised down its 2014 hotel business target to 3-4% RevPar growth (from 6-10%), with occupancy rate at 76% (down from 80%) and ARR increase of 6-7%. For its food business, its target is SSS at 1-2% and total system sales (TSS) at 9-10% with 75 additional outlets.

2013-2015F reduced. To factor in the political impact and weak economy, we revised down CENTEL's earnings by 13% in 2013, 19% in 2014 and 3% in 2015. Our assumptions are: 1) 5% growth in international tourist arrivals in 2014, most of which will be in 2H14, 2) a 3% lower RevPar in 2014 (from lower occupancy rate) but maintain RevPar in 2015 and 3) lower SSS to 2% in 2014( from 5%). Our 2013 forecast of Bt1.4bn net profit suggests 4Q13 net profit of Bt352mn, up 82% QoQ. We note that YoY comparison is not meaningful because of the 2012 financial restatement. We expect 14% net profit growth in 2014 followed by a strong 44% in 2015 as Thai tourism recovers.

New TP Bt38. The earnings revision reduces 2014 TP to Bt38 from Bt44, offering 18% upside gain. We maintain BUY on CENTEL.


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