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Central Plaza Hotel

Price laggard offers trading opportunity BUY

Central Plaza Hotel Plc (CENTEL)

- Despite improving operations, CENTEL's share price has underperformed MINT by 7%

over the past one month, opening up a trading opportunity.

- Hotel operations improved in April-May but hiccupped in June.

- Food SSS turned positive in May after negatives since 3Q13.

- Maintain BUY with mid-2015 TP at Bt42/share.


Laggard performer but improving ops opens trading opportunity. Over the past one month, share prices of hoteliers have outperformed the market, led by MINT at +13%, ERW at +8% and CENTEL at +5% vs. the SET at 4%. CENTEL has lagged the others and we believe this opens the door to a trading opportunity. Its hotel and food arms are both improving after the weak 1Q14, though there was a brief hiccup in June after declaration of martial law in late May. Unsurprisingly, this ate into 2Q14 profits (we preliminarily expect Bt180mn, down 7% YoY and 63% QoQ due to seasonality). Looking beyond this, the return of optimism towards Thailand's tourism industry should be a catalyst for CENTEL's share price. We maintain BUY on CENTEL with mid-2015 TP at Bt42/share.

RevPar slippage for hotels in Bangkok less in 2Q14. A talk with CENTEL revealed that operations of hotels in Bangkok (32% of hotel revenues) improved in April-May, with RevPar holding ground better after the 44% YoY contraction in 1Q14. This recovery pattern zigzagged in June after the declaration of martial law in late May. However, we did see some positive signs in 2Q14, with the RevPar contraction for hotels in Bangkok lower at 30% YoY vs. 44% YoY in 1Q14. Hotels outside Bangkok (53% of hotel revenues) and the Maldives (15% of hotel revenues) continued strong in 2Q14 with RevPar growth at 4% YoY and 22% YoY, respectively.

Food business: SSS turned positive in May. Half of CENTEL's revenues are from its food business (all outlets are in Thailand). Its same-store sales growth (SSS) has been contracting since 3Q13 (-0.3% in 3Q13, -2.9% in 4Q13 and -1.8% in 1Q14), pressured down by the poorer economic outlook, weak consumer spending and political unrest. The situation now looks brighter with a pickup in the Consumer Confidence Index (CCI) to 75.1 in June from 70.7 in May, the second month of gains after 13 months of drops. CENTEL says SSS turned positive in May and expects this to continue through June, aided by the 2014 World Cup.

Thai tourism industry at or near bottom. The intensity of the political deadlock has eased and we believe it is on the way to being resolved, which means tourism can bottom in 2Q-3Q14. Positives include the nationwide lifting of the curfew (lifted first in major tourist destinations Pattaya, Phuket and Samui), the expected setup of an interim government in August-September and forthcoming stimulus measures to boost confidence and tourism prospects. We expect the calm to release pent-up demand, especially in markets highly sensitive to politics, and bring Thai tourism back to its feet, ready to enjoy the high season in 4Q14.




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