The Nation



Central Plaza Hotel

Key takeaways from local NDR: Clear recovery signs

Central Plaza Hotel Plc (CENTEL)

Investment thesis

Last week, we accompanied Dr Ronnachit Mahattanapreut, CFO, on a non-deal roadshow to local fund managers. We think now is a good time to start accumulating the stock, given positive signs in June. We have upgraded our rating from HOLD to BUY with a higher DCF-derived YE14 target price of Bt45, which factors in new BLS assumptions for market return (cut from 12.8% to 12.6%) and risk-free rate (cut from 4.5% to 4.2%), 7.8% WACC and 2% terminal growth and narrower DCF value discount of 5% (previously 20%).

Earnings forecast upgrades—strong growth anticipated for FY15

We have revised up our core profit forecasts by 2percent for FY14 and 4percent for FY15, as we now assume no deep hotel price discounting during 2Q-3Q14 low-season and a full hotel business recovery in FY15. Our Hotel RevPar assumptions rise from a 4% YoY decline to 3% YoY growth for FY14 and from 7% growth to 9% growth for FY15. The hotel occupancy rate is expected to increase from 75% in FY14 to 80% in FY15 (CENTEL's target is 82%). We conservatively model for mean room rate growth of 3% in FY14 and 5% in FY15 (CENTEL guides for 6-10% YoY growth). Food TSSG is expected at 8.5percent for FY14 and 10percent for FY15 (in line with CENTEL's targets).

Positive signals and expanded expectations for 2Q14

Food SSS will post a turnaround from YoY slippage of 1.8% in 1Q14 to growth of 0.3% in 2Q14. CENTEL guides that SSS dipped 0.9% YoY in April, but rose YoY by 0.4% in May and 2.0% in June. TSSG of 8% is expected for 2Q14 (6percent for 1Q14). Hefty profits at hotels in the Maldives mitigated the effect of poor Bangkok hotel numbers. Surprisingly, MICE income will post a V-shape recovery for 2Q14—from a record low of Bt35m in 1Q14 to Bt66m in 2Q14, led by domestic events. MICE income should hit Bt209m for 2H14, up by 1% YoY and 107% HoH.

Full earnings recovery in 4Q14

2Q14 will prove to be the core earnings nadir for FY14—we expect Bt102m, down by 45% YoY and 80% QoQ. Profit should bounce to Bt165m in 3Q14 and recover fully to Bt638m in 4Q14. The Hotel business will normalize in Oct (the start of high season).

Eyes on new acquisitions and investments

Dr Ronnachit guided that the net gearing ratio will decline from 1.0x at end-March to 0.9x at end-June and 0.8x at YE14 (the cleanest balance sheet in its history). Thus, the firm plans new investments and acquisitions with a 15% hurdle IRR. By Sept, CENTEL will purchase the remaining 50percent stake in Kata Hotel (adds 1% to our FY14 profit forecast). It is negotiating to acquire a new food brand (a profitable operating asset) with annual revenue of about Bt1bn. The firm also plans to build a new Bt6.6bn five-star property in Cha-am, to open in 2017 (not yet factored into our model).

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