Minor International

Room rate expansion!

Minor International Plc (MINT)

Investment thesis

We have upped our YE13 target price to Bt26.80 (from Bt25) in order to factor in an earnings forecast increases, which were prompted by MINT's recent acquisition in China. Our target price remains a 10% discount to DCF (11.5% WACC and a 2% terminal growth rate). We expect the firm to post strong YoY and QoQ earnings growth for 4Q12 and a record high core profit for 1Q13. Over the longer-term, hotel room rate expansion will drive FY13 numbers. New acquisitions and Anantara Residences Phuket (a residential project) would mean scope for bottom-line upside over the long-term. Although the share price has risen 9% YTD, it has further to run—excellent hotel performances will prompt a re-rating.

The stock trades at an FY13 PER of 23x, far below the 29x it traded at in 2007 (2SDs above its mean).

Earnings forecast upgrade on turnaround in China

We have revised up our core profit forecasts by 2percent for FY13 and by 3percent for FY14 to incorporate the additional profit from the recent acquisition of Beijing Riverside & Courtyard (Riverside)—a chain of casual concept restaurants in China. We assume that MINT will increase its stake in Riverside from 49% initially to 60% at YE13 and 79% at YE14 with TSSG of 24percent for FY13 (to revenue of Bt1.2bn) and 15percent for FY14 (revenue of Bt1.3bn). With Riverside's high IRR of 20%, the operation in China will turn around from a net loss of Bt140m in FY12 to break-even in FY13 and a net profit in FY14 (2% of MINT's bottom-line).

Room rate recovery

The firm's mean FY12 hotel room rate should rise 4% YoY (after declining for three years, FY09-11), led by a high occupancy rate of 70% last year. The firm's FY12 mean room rate for Thailand will rise 5% YoY and its Bangkok room rate will jump 9% YoY. Management guides for a room rate increase in the range of 7-10percent for FY13.

Strong numbers to be posted for 4Q12

For 4Q12 high season, MINT's hotel's occupancy rate is estimated at 72% on average (69% in 4Q11) and room rate growth is assumed at 6% YoY, making for 11% YoY RevPar expansion (note that in 4Q11, its performance was badly affected by Bangkok flooding). For MINT's hotels in Thailand, we expect 4Q12 RevPar to post a 36% YoY jump, driven by both occupancy (up from 55% in 4Q11 to 70% in 4Q12) and room rate (up 8%). Oaks will post a sustained high occupancy rate of 79% and a 5% YoY room rate increase for the quarter. The Food business should report 4Q12 TSSG of 15.1% YoY and SSSG of 4.6%. Thus, we expect a core profit of Bt885m, up by 25% YoY and 51% QoQ.