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Minor International

RevPar growth leadership

Minor International Plc (MINT)

Investment thesis

Among our Tourism coverage, MINT will post the best hotel RevPar growth and Food SSSG for 2Q-3Q14. There is also scope for upside to our FY15 earnings forecast from a residential project and the possibility of further acquisitions. Our BUY rating stands with an upgraded DCF-derived YE14 target price of Bt38 (from Bt29), 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%)—9.6% WACC and 2% terminal growth. Note that we have cut our DCF value discount from 20% to 5% ahead of forecast record profits for 4Q14 and 1Q15.

Hotel RevPar growth leadership

For 2Q14, MINT is expected to report 12% YoY RevPar growth, driven by room rate expansion of 10percent for provincial Thailand and 8percent for overseas locations. MINT is the RevPar growth leader of our coverage (YoY growth of 5percent for CENTEL and a contraction for ERW), as it is the least-exposed to Bangkok hotels of the firms we cover (5% of its top-line). We expect 2Q14 YoY RevPar growth of 11percent for its overseas hotels and 2percent for its provincial Thai hotels. Despite political chaos in 5M14, MINT's RevPar growth is estimated at 9% YoY for 1H14 (the highest of our coverage).

Food SSS turnaround for 2Q14

Food SSS will turnaround from YoY slippage of 1.8% in 1Q14 to growth of 2.0percent for 2Q14, we expect (against YoY SSS declines for CENTEL and M). MINT's TSSG should post a 16% YoY rise, driven by outlet expansion. SSS growth means fatter QoQ margins. TSSG of 12% is expected for 1H14 (in line with its FY14 target of 12-15%).

YoY core profit growth for 2Q-4Q14 (a new record for 4Q14)

We expect MINT to post YoY core profit expansion for 2Q14 against core profit declines for peers (both CENTEL and ERW look set to report losses for their hotel operations). However, all hotel operators will report QoQ drops in operational earnings for 2Q14, due to seasonality and the political chaos that reigned during much of the quarter. MINT should resume both YoY and QoQ profit growth in 3Q14 and set new core earnings records for 4Q14 and 1Q15 (high season).

Anantara Residence may trigger an FY15 profit forecast upgrade

We haven't yet priced in a luxury residential project—The Residence by Anantara, Layan Phuket (Bt4.5bn; 15 villas, sales prices of $US8-10m/ unit)—which MINT plans to launch in 4Q14. We expect revenue recognition to start in 1Q15. Assuming a 20% take-up rate, there would be 4% upside to our FY15 profit forecast. MINT is also contemplating a mixed-use project in Chiangmai (an Anantara hotel and residential units for sale). Its low net-gearing ratio of 0.8x at end-March can comfortably accommodate new investments and acquisitions.

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