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Central Plaza Hotel

2Q14 profit below expectation. To rebound in 2H14 BUY



Central Plaza Hotel Plc (CENTEL)

2Q14 net profit fell 78%yoy. Yet, profit and fair value is expected to

rise thanks to CENTEL's plan to increase its shareholding on Kata

Phuket Hotel to 100%. We recommend buying when the price

weakens.

- 2Q14 profit falls 78%yoy, below expectation

2Q14 net profit was reported at B42m, contracting 78%yoy (projected at

B81m). Income from other business was B15m lower than expected, and

gross margin dropped from 39% in 2Q13 to 37.6% in 2Q14 (projected at

38.1%). Total income from operation rose by 4%yoy to B4,267m. Income

from food business (61% of total income) grew by 8.3%yoy; 63 new

branches have been opened, totaling 768 branches, whereas same store

sales rose by 0.3%. Meanwhile, income from hotel business (39% of total

income) slipped 2%yoy due to the political unrest. As a result of lower

income from hotel business and higher expenses on food business (raw

material and branches expansion), EBITDA margin dropped from 19% in

2Q13 to 13.8% in 2Q14.

- To rebound in 3Q14, 4Q14

Hotel business has been reviving in 3Q14 as the political turmoil receded.

Occupancy rate improved from averagely 69% in 2Q14 to 72% in July, and

RevPar rose from 2Q14 by 4.7% to B3,000/room/night, possibly rising

further in 4Q14 (high season). Food business has also recovered as

consumers regain confidence. 51 new more branches would be opened in

2H14 (versus 24 branches in 1H14). Overall, we maintain our earnings

forecast, projecting FY2014 normalized profit to stay flat at B1,346m.

CENTEL has planned to increase its shareholding on Kata Phuket Hotel from

50% to 100%; the conclusion will be made in 3Q14 (not included in our

earnings forecast yet). From this plan, CENTEL will recognize B170m/year

more income from the hotel, its EBITDA would rise by B65-75m (CENTEL

initially recognizes only share of profit from the hotel), and additional profit

from appraisal of assets would be booked.

- BUY when price weaken

CENTEL’s net profit is expected to rebound after passing its lowest in 2Q14.

Its upside would increase thanks to the plan to increase its shareholding on

Kata Phuket Hotel. We recommend buying when the price weakens. Its

FY2014 fair value (DCF, 9.3% WACC) is B40.00.


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