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
- 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.